Yesterday's post about diversity in emerging market selection prompted a reader to ask what my favorite ETFs are for the three countries mentioned (Brazil, China and Hungary). Unfortunately I am going to let the reader down.  Part of the process for international investing is knowing when to reduce or avoid a country. But even if you are away from a country now, that does not mean you should not still keep tabs on what is going on because at some point you may want to go back in. File this under odd and as a just how the market works tidbit. The relationship of some currencies can tell us things about other markets. One example where I think this exists is with the Australian dollar versus the Swiss franc. I first heard about this earlier this decade. Some view the Aussie as a proxy for risk taking and view the Swissi as a proxy for safety. Over the last couple of years there apears that there is something to this. The current decade has been a great example of why foreign investing is so important. While the US has been on a decade-long round trip to nowhere there have been many foreign destinations that have had normal or close to normal bull market returns. The simple decision to allocate to foreign may be the single most important decision someone could have made this decade (either that or allocating to commodities). On Monday morning in Australia the tape was alive with trading in two of Australia's powerhouse miners as Oxiana (OXR AU) and Zinifex (ZFX AU) agreed to a friendly merger creating one of the world's largest diversified mining companies. Together the companies will carry a value of close to $12 Billion serving the Zinc, Lead, Copper, Silver, and Gold markets.

There is an interesting article in the Financial Times regarding the rush by some Australian infrastructure funds to divest assets. Just within the last month or so infrastructure has been receiving increased attention, some of which helped to trigger the creation of new infrastructure indexes (see previous post). Now, credit problems and the general global credit crunch are causing some infrastructure funds to look for ways to reduce their weighted average cost of capital, such as by cutting net debt, paying distributions only from operating cash flows, or even selling assets that are currently at high valuations. What a difference a month or two makes. 

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Short post; I have to get down to Phoenix (about two hours away) for a CNBC segment scheduled for 30 minutes before the close. A few months ago on my blog I talked about possibly buying some New Zealand sovereign debt if NZD/USD went below 0.70. Back then the NZD/USD was around 0.76 and a lower kiwi made sense for several reasons inherent to the current state of affairs in New Zealand.  I have exposure to antipodean debt with Australia already so I have decided to not add to the exposure with what looks like open ended rate cuts on the way. This morning the WSJ has a recap of the earnings report for Intercontinental Exchange (NYSE: ICE). Earnings jumped 58% based in more volume. Obviously where exchanges are concerned more volume means more revenue and probably more earnings.

Consolidation and pullbacks are normal and should be viewed as healthy for the sustainability of a bull market in commodities. This may be the perfect time to load up on commodities that have lost their luster where the fundamentals are still sound. The recent correction was attributed to the shifting market sentiment that we may have a global slowdown and threats from regulators as opposed to a change in supply and demand characteristics. Instead of exiting commodities completely, the smart money is likely to move from the more high profile contracts such as energies to more innocuous contracts such as livestock and softs. In the case of crops, any substantial increase in the supply of one crop is invariably at the cost of some other. The world’s arable land is diminishing, while demand driven by population and incomes are increasing. The world has consumed more food than it has produced for the past five years. That being said we are still friendly to agriculture if one can deal with the volatility.

Although we rarely trade the New Zealand currency, we thought it be notable to share that the Reserve Bank of New Zealand reduced rates last week a quarter point to 8.0%. This is significant because they have not lowered rates in 5 years and it could be sign of what is to come for central banks around the globe.

Statistics Canada said that consumer prices were up 3.1% in June from a year ago, up from a 2.2% gain in May and the biggest annual increase in over two years. The September Canadian dollar continued its downward march as prices lost 140 ticks last week closing near the lows. We have been recommending shorts for the last 2 weeks and will continue to advise selling rallies looking for prices to reach .9750 on the next leg down in September.

Australia's Bureau of Statistics said that consumer prices were up 4.5% in the second quarter from a year ago, the biggest gain since 2001. The September Australian dollar was down just under 150 ticks on the week. As we warned last week the Aussie could get hit on any dollar strength. We still expect to see parity down the road but for now prices could track lower. The 50% Fibonacci retracement support is .9460 which is followed by the 61.8% retracement at .9385.

Reports last week showed euro-zone economic activity at a seven-year low and a further drop in German confidence. With a faltering economy it may be which currency the dollar or euro investor’s view as the lesser of two evils. The September Euro currency lost 142 ticks on the week, but was able to hold above support at 1.5600. We still favor the short side and will be selling rallies for clients, but expect a quiet week with trading between 1.5750 and 1.5500. The British Bankers' Association said that mortgage approvals were down 67% in June from a year ago, the lowest level in at least ten years. Last week the cable lost 80 ticks to close at 1.9820 just above the 20 day moving average. As we have been touting of late we would expect the recent highs just above 2.00 to serve as solid resistance and for a grind lower in prices over the next few weeks. We will be selling rallies for clients in this currency as well.

Japanese exports declined for the first time in about five years, further evidence that economies around the world are being affected by the recent financial turmoil. The yen has made its way back to recent lows and is starting to look attractive for a long entry. One can try to probe with futures using stops below the low in late June of .9251 in September. We have started to shop September call options for clients.

The September Swiss franc lost 136 ticks last week and is currently in the middle of the trading range from the last 2 months. The Swiss franc remains on our no interest list as we feel prices once again could go either way. If positioned short from recent recommendations, stay short and trail a stop; our initial target of .9760 was attained and our next target is .9600 which should be reached this week on further selling.

The dollar index made some head way last week as September advanced 65 ticks closing above the 20 day moving average but just below recent resistance at 73.075. Look for consumer confidence and non-farm payrolls to be the catalyst to move the dollar this week. We also still see a relationship between oil and the dollar so look for a potential bounce from over sold levels in crude to influence as well. Support comes in at 72.89 with resistance just above last week’s high at 73.25 followed by 73.60. We are aggressive sellers between 73.50 and 74.00, thinking that any strength in the dollar will be short lived all things considered. Remember to monitor dollar movement not so much as to trade, but for help with other markets.

Corn:  Weekly export sales showed 324 t.m.t. of corn was sold last week. The break of over $2 /bushel has importers patiently waiting for lower prices. I expect to see higher prices into the August 12th crop report and with a little help the low from last week at $5.62 1/2 should hold. The December 08’ contract has not closed below the 200 day moving average since this contract has been on the board and on the break last week we got within 7 cents of this level. The current market swings are largely dictated by fund liquidation, bargain hunters, and the weather. We are getting clients that were not previously positioned in corn long via options and futures, we still have some clients holding from higher levels still anticipating prices to eventually get back to $7.47 to fill the gap from previous weeks. On August 12th, the USDA will release its final numbers on how many corn acres were planted. Their last estimate was June 30th and was supposed to be the final planted acres number of the year, but with horrific weather, late plantings, reseedings and flooding the most recent report was incomplete. Regardless of what the report says, the fear is that the report could show a 1 to 3 million acre reduction in corn acres. With the last USDA crop report putting ending stocks at 833 m.b. a further reduction could cut ending stocks sharply again setting in motion a price rationing rally. Assuming last week’s low holds, we first need to see a close above $6 and then we should see more buying come in. Whether it is a short covering bounce or a resumption of the uptrend our targets are $6.50, $6.80, $7.08 and then ultimately $7.47. Support comes in at $5.85 followed by $5.62 ½.

Beans: Weekly export sales showed 183 t.m.t. of old crop beans were sold last week. New crop sales of beans were 552 t.mt.. Old crop sales were bearish, but new crop sales were bullish. In terms of buying the break in beans support comes in at the 100 day moving average which failed to break last week on 3 attempts at $13.55 in November. The August 12th planted acreage report is expected to show a 1 or 2 m.a. decrease in planted acres due to June floods. Ending stocks are pegged a dangerously low 140 m.b. a further reduction in planted acres could have the USDA cutting ending stocks to 20-60 m.b. If $13.55 was to give way next support comes in at $13.39 and although we are not as friendly to beans as we are to corn, traders should have some long exposure into the August 12th repot weather it be in soy meal or soybeans. When debating whether a long entry is worthy of your money remember bean’s yields are determined in August during the pod setting stage so the crop is yet to be made. A hotter and drier August and a August 12th crop report acreage reduction and new contract highs could be made, which from today’s prices is $2.40 away on November.

Wheat:  Weekly export sales showed 610 t.m.t. of wheat was sold last week. Look for demand to remain good through the finish of the spring wheat harvest in August. Wheat has little news of its own and remains largely in a followers roll to corn. If weather turns bullish for corn it is bullish for spring wheat and the reverse holds as well. We like being lightly long September CBOT and KCBOT but if forced to choose between the 2, buy KCBOT. Look for last week’s low to hold at $8.08 ¼ and we have a target of $8.75 followed by $9. As far as CBOT wheat goes also look for last week’s low at $7.75 to hold and prices to track up to $8.57 followed by $8.83. A less aggressive play then outright getting long is to buy KCBOT and sell CBOT against it. The spread is currently at 22 ½ cents premium to KCBOT and we expect to see this gain 30-50 cents in the coming weeks, we would suggest risking approximately 20 cents on the trade.

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Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions. Calculations of profit and loss have not factored in commissions and fees.

Over the past few weeks, it has becoming increasing clear which countries and their currencies are headed down the gutter: The 3 currencies that I am most bearish for the near term are (in order of bearishness). 1. New Zealand Dollar - Targeting 70 Cents