Today's Major Market Move: FCOJ Futures Drop 3.7% in Monday's Session

The 2012 version of the screwdriver: replace the vodka with volatility. Frozen concentrate futures have been on quite the ride this year, spiking over 30% on the fears that Brazilian imports would be banned because of a fungicide, and then collapsing back down after the Brazilians indicated the fungicide would no longer be used. As is often the case, the post-spike reversal has had so much momentum that the price has now fallen below pre-spike levels.

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According to this article from Reuters, FCOJ futures haven't been this low since Oct 2010 and indicators point to the price falling further:

Futures have plummeted 35 percent from a record $2.2695 a pound on Jan. 23. Groves in Florida, the world’s second-biggest citrus grower, avoided freezing weather in the first quarter, and concerns eased that supplies would be disrupted by a U.S. probe of imports containing a banned fungicide.

“This market has nothing bullish going for it,” Michael Smith, the president of T&K Futures & Options Inc. in Port St. Lucie, Florida, said in a telephone interview. “Demand is weak, and unless we get a huge weather event, this market could go down to $1 by the end of the year.”

For the year FCOJ is down 9.6%, well behind Natural Gas and Coffee futures which are both down over 20%. Here's the top ten worst performers in the commodities space for 2012:

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Today's Major Market Move: German 2 Year Bund Yield Declines 7 Basis Points in Past Week

Back in our March 20th post we discussed how sovereign bond rates in the major economies were starting to make a pronounced move higher. That post turned out to be anti-prophetic as since then yields have reversed themselves and some, like the 2 year German Bund, have hit new swing lows.

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During the two and a half week time frame from March 20, 2012 to April 7, 2012, 65 out of 72 sovereign bonds we track (from Japan, the U.S., the U.K., Australia, Germany and Brazil) have seen their yields decline. This means there remains one sizable community of investors, namely the sovereign bond market, that is still not convinced of the sustainability of this current recovery. When the prospects for growth in equities and commodities outweigh the need for safety in the bond market, we will start to see bond investors moving their money out of bonds and into the other asset classes. With interest rates still far below their historic averages, the current environment seems more like "Japan Syndrome" from the past 20+ years. Remember that the Japanese experienced several rallies (see 1996, 1999 and 2006) during their prolonged and ongoing malaise that ended up generating false hope.

Today's Major Market Move: Russian Ruble Strengthens 8.6% Against US Dollar Year to Date

After weakening 16% against the US Dollar in the latter half of 2011, the Russian Ruble has reversed course in 2012 and has strengthened 8.6% year to date. This puts the Ruble in a tie with the Colombian Peso for the top spot in terms best performing currencies against the Dollar in 2012.

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Considering that Russia is the #1 oil exporting country, it is not surprising that there is a fairly tight inverse correlation between the USDRUB and the price of oil (in this case we're going to use the Brent front month futures contract).

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In light of this recent strengthening, here's a timely article from Reuters with some quotes from the head of the Russian central bank. It's interesting to note that, unlike several other central banks (see China, Japan, Switzerland, Columbia) there were no references made about being prepared to intervene in the currency markets were it to become necessary. We think there are two reasons for this: 1) this current move, while worth noting, is not really that large in the grand scheme of things. The USDRUB has still not yet breached the lows of 2011. 2) Natural resources, such as oil, represent a large portion of Russia's exports. Countries whose primary exports are natural resources, as compared to those who primarily export manufactured goods, receive less of a benefit from currency devaluation.

Today's Major Market Move: Cotton Futures Decline 5.3% Week to Date

Commodities made the news earlier this week when precious metals and oil experienced sizable declines earlier this week. Silver dropped 3.5% on Tuesday and WTI crude came close to dropping below $100/barrel. But it turns out that the biggest decliner so far this week is neither a precious metal nor energy related; it's cotton.

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After falling precipitously in mid 2011 (we discussed this in 2011 end of year post), front month cotton futures have been trading in a relatively narrow channel for the past five months. With this weeks decline, cotton is approaching the bottom edge of that channel.

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According to this article from Reuters, this recent sell off was due to a combination of a lower probability of QE3 signaled by the fed with reduced cotton demand in China.

With decreased chances of continued easy money over the next two years, some investors exited so-called risky assets. "We are still suffering from the risk-off trade after the Fed said there is little likelihood of a QE3 (third round of easing)," said Ron Lawson, managing director of logicadvisors.com in California.

I'm not so sure I agree with the "Fed pulling the plug on QE3" line of reasoning. If true, one would've expected a more broad based sell off in commodities this week, which we didn't get. For the week, 14 out of the 29 commodity futures we track are up and even WTI and Brent, which saw heavy selling on Monday and Tuesday, are now back in the green.

Today's Major Market Move: Finland's Stock Market Declines 3.9% in Wednesday's Session

The last time we talked about Finnish equities was back on August 5th, 2011 after the benchmark OMX Helsinki 25 Index dropped over 20% in the previous 30 days. Finland's stock market continues to struggle and remains solidly in the red going back to 2007. Today brought more bad news as the OMX Helsinki 25 Index dropped 3.9%, making it the worst performing equity index globally.

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It wasn't a good day for equities in general around the planet with 294 out of the 320 equity indexes we track either in the red or flat. The sell off was driven by pessimistic statements from the European and U.S. central banks related to growth prospects and continued stimulus. Yes that sounds contradictory but it's the game that the central bankers play in order to keep a lid on oil prices. Unambiguous talk of QE 3 or ESFS 2 cannot take place with WTI Crude still in the triple digits.

Going back to Finland, their economy continues to struggle under the dual yokes of the global economic crisis and the diminishing fortunes of Nokia. As we mentioned in the Aug 5th post, for a single company, Nokia represents a massive portion of the Finnish economy. Its been true for a while now that if you're in the mobile space and you're not Apple, Google or a pure hardware play like Samsung, you're most likely getting your head handed to you.

The IMF is calling for muted GDP growth over the next four years and equities have not been able to climb out of the red since the 2008 crash (although they came close at the end of 2010).

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Today's Major Market Move: Venezuela's Stock Market Up Over 200% Since January 2011

In what has to be one of the more remarkable performances for a benchmark equity index over a 15 month span, the Venezuelan Stock Market Index is now up over 200% since the beginning of 2011. The index was at 65.79K on January 1 2011 and just recently it crossed the 200K mark. To add some perspective, we'll put the Venezuelan Stock Market index up alongside Apple's stock price.

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As we've mentioned several times before, the main impetus for the gains in Venezuela's equity market is Chavez's cancer. In what we've come to call the "oncological boom", investors in Venezuela have a morbid hope that Chavez's passing will make way for a more business friendly and free market oriented regime. This expectation has resulted in equity performance completely outpacing gdp growth. Of course, the IMF is unlikely to have factored a premature death by Chavez into their estimates.

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Today's Major Market Move: ChiNext Price Equity Index Declines 8% in Past Week

Chinese equity indexes in general have been showing significant weakness lately with several of them approaching 5 year lows. The most volatile of the bunch that we track and thus not surprisingly also the worst performer of the bunch is the ChiNext Price Index. The ChiNext has dropped 8% in the past week making it the third worst performer behind the usual suspects of Greece and Cyprus:

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Here's the chart showing the performance of seven Chinese equity indexes compared to GDP growth going back to 2007. Several of the indexes are in the red over that time period, including the ChiNext (be aware that the ChiNext Price Index wasn't established until June 2010).

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The GDP growth line in the previous chart is about 6 months stale. The data comes from the IMF and is released biannually with the next release due in a couple of weeks. This means that the last couple of downward revisions to 2012 GDP growth haven't been factored in (and most likely there will be downward revisions to years beyond 2012 as well).

While we're talking about China, let's check in on the USDCNY cross. There doesn't seem to be as much chatter lately about Chinese currency manipulation, very surprising considering that the Republican primaries are still dragging on. Maybe the fact that the Chinese economy is slowing (as measured by GDP) and maybe also the fact that Chinese stocks are weakening have caused some U.S. officials to back off some. Anyway... here's that chart:

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The Yuan has pretty much hovered around the 6.30 level for all of 2012. If the Chinese are planning to try to give their economy a boost through devaluation, we wouldn't be surprised if they waited until after the election in November to put that plan into action.