Bloomberg U.S. Stocks Tumble as Financials, Commodity Shares Retreat

April 20 (Bloomberg) -- U.S. stocks tumbled, led by the biggest drop in financial shares in three months, as concern grew that credit losses are worsening and lower commodity prices dragged down energy and material producers.

Bank of America Corp., the lender that lost more than three-quarters of its market value in the past year, plunged 24 percent as rising charge-offs for bad loans overshadowed better- than-estimated earnings. Citigroup Inc. dropped 19 percent after Goldman Sachs Group Inc. said the bank’s credit losses are growing at a “rapid rate.” U.S. Steel Corp. and Exxon Mobil Corp. declined as oil and industrial metal prices decreased.

“The market seems to follow the direction of financial stocks one way or another,” said Keith Wirtz, who helps oversee $20 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. “There are definitely more writedowns ahead and more challenges for the loan portfolios, particularly in the consumer side of the equation.”

The Standard & Poor’s 500 Index slid 4.3 percent to 832.39, its steepest tumble since March 2. The Dow Jones Industrial Average lost 289.6 points, or 3.6 percent, to 7,841.73. The Russell 2000 Index retreated 5.6 percent. About 20 stocks fell for each that gained on the New York Stock Exchange, the broadest decline since Feb. 10.

Benchmark indexes opened lower and extended declines in early trading after the Conference Board’s gauge of leading economic indicators fell more than forecast.

VIX Rebounds
The VIX, which measures the cost of using options as insurance against declines in the S&P 500, jumped 15 percent to 39.18 for its steepest advance in three months. The index, which has fallen for four straight weeks, closed at a six-month low on April 17.

The S&P 500 wrapped up its steepest six-week gain since 1938 on April 17, as profits at Goldman Sachs and JPMorgan Chase & Co. ignited gains in bank shares. The rally may falter as a prolonged recession dents corporate earnings, George Hoguet, global investment strategist at Boston-based State Street Global Advisors Inc., said in an April 18 interview.

The S&P 500 surged 29 percent from a 12-year low on March 9 through last week as expectations grew that the worst of a global recession is past. The rally came even as analysts estimate that profits at S&P 500 companies decreased for the seventh straight quarter in the January to March period, the longest stretch of declines since at least the Great Depression.

‘Period of Consolidation’
“We’re going to get a lot of earnings releases this week and by and large they’re going to be disappointing,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group, which oversees $8 billion in New York. “Besides, we’ve had a very sharp run-up in the market. So I see a period of consolidation now, maybe a week or two of declines.”

Crude palm oil futures slightly higher

Malaysian crude palm oil futures closed slightly firmer yesterday, giving up most of the day’s gains, as the market consolidated after last week’s supply tightness-inspired rally, traders said.

“The market is trying to consolidate waiting for more fresh bullish news to push it up further,” a trader at a Kaula Lumpur-based brokerage said.

The benchmark July contract on the Bursa Malaysia Derivatives Exchange rose RM11, or 0.45 per cent, to RM2,446, after going as high as RM2,501 ringgit and as low as RM2,393.
The midday rally was boosted by news of stronger exports during the first 20 days of April but could not sustain as the price was seen overbought, traders said.

“I think the rally is overdone. Today we see the market tested RM2,500 again but of course could not sustain the momentum, so that tiggered some technical selling,” the trader said.

The price of the tropical oil - used in various products from soap to biodiesel - has gained 47 per cent this year supported by falling Malaysian palm stock.

Analysts said top producers Indonesia and Malaysia could see palm output falling in April-June, rather than a gradual increase as usually expected, driving total stocks down by more than half to below 2.5 million tonnes by the end of the period, from a record 5 million tonnes in November.

Exports of Malaysian palm oil products for April 1-20 rose 4.2 per cent to 754,129 tonnes, from 723,770 tonnes shipped between March 1-20, cargo surveyor Intertek Testing Services said yesterday.

Another cargo surveyor Societe Generale de Surveillance said yesterday exports of Malaysian palm oil products for April 1-20 rose 0.8 per cent to 747,575 tonnes from 741,397 tonnes shipped between March 1 and 20.

Other traded months rose between RM5 and RM41.

Overall volume was heavy at 18,303 lots of 25 tonnes each, nearly doubled the usual 10,000 lots.

In the Malaysian physical market, trades for April and May were done between RM2,610 and RM2,630 in the southern region, and at RM2,600-RM2,630 in the central region.

Palm Oil Extends Rally on Lower Stockpiles, Argentine Drought

Palm oil futures in Malaysia extended an eight-week rally on speculation that demand for the tropical crop is rising, depressing stockpiles, while the supply of rival soybeans may be hurt by drought in Argentina.

Palm oil and soybean oil are substitutes.
“Traders are friendly to the grains and oilseeds complex,” Geoff Clear, global co-head of commodities at Australia & New Zealand Banking Group, said in an interview. “There has been a very sharp drawdown of palm oil stocks.”

Stockpiles of palm oil in Malaysia fell 13 percent to 1.36 million metric tons in March, the lowest since July 2007, the nation’s palm oil board said April 10. Inventory in the second- largest producer after Indonesia was at a record in November.

July-delivery palm oil on the Malaysia Derivatives Exchange rose as much as 2.7 percent to 2,501 ringgit ($689) a ton in Kuala Lumpur, and closed 0.45 percent higher at 2,446 ringgit. Palm oil has surged 33 percent over the past eight weeks.

“Low stock levels boosted crude palm oil prices as there were talks of possible supply problems creeping into the industry,” an ECMLibra Investment Research report said today.

Stockpiles are “down 40 percent from the record, pushing prices up to range between 2,400 and 2,500 ringgit” a ton, said ANZ’s Clear. Traders “are long soybeans,” he said, referring to bets that prices will gain.

Argentina, the largest soybean oil shipper, is having its worst drought in more than four decades. The Buenos Aires Cereals Exchange lowered its 2009 soybean forecast by 6.1 percent to 37 million tons as the harvest may be the lowest in four years, according to an April 15 statement.

Planting Intentions
The U.S., the largest soybean grower, indicated this month that farmers may plant less than earlier expected. Soybean oil and palm oil are substitutes, accounting for about two-thirds of the world’s cooking oils.

Palm oil’s 44 percent surge this year compares with the 9 percent rise in soybean oil traded in Chicago, which was 1 percent lower at 36.42 cents a pound at 6:05 p.m. in Singapore. That’s cut soybean oil’s premium over palm oil to 20 percent, according to Bloomberg data, compared with an average over the past six months of 44 percent.

Palm oil exports from Malaysia rose in March for the first time in three months, according to the board. Overseas shipments in the first 20 days of April probably advanced 4.2 percent to 754,129 tons, cargo surveyor Intertek said today.

Still, palm oil could sustain the day’s earlier gains and may be “at risk of finding a peak for the next few weeks” until the U.S. Department of Agriculture reports actual soybean sowing by end of June, Clear said.

Soybean Plantings
U.S. soybean acres will rise 0.4 percent to a record 76.02 million acres, the U.S. Department of Agriculture said March 31 in a report on farmers’ planting plans. That was less than the 4.5 percent gain that had been forecast in a Bloomberg survey.

Palm oil futures “peaked out” at 2,540 ringgit a ton on April 15 and may decline toward so-called support levels at 2,058 ringgit, 2,201 ringgit and 2,315 ringgit, Maybank Investment Bank Bhd. said last week. Support refers to prices at which buy orders may be clustered.

Palm oil output usually rises in the second half of the year. Malaysia and Indonesia, the world’s biggest producers, have both forecast record production this year.

Business Times Malaysia Apr 1-20 palm exports rise

Exports of Malaysian palm oil products for April 1-20 rose 4.2 per cent to 754,129 tonnes from 723,770 tonnes shipped between March 1 and 20, cargo surveyor Intertek Testing Services said today.

Meanwhile, another cargo surveyor Societe Generale de Surveillance reported that exports rose 0.8 per cent to 747,575 tonnes. - Reuters

Business Times CPO futures -- still bull market but volatility ahead

OBSERVATIONS: News of China's voracious appetite for edible oils was the catalyst behind last week's price spikes in the Kuala Lumpur CPO futures market and the US soyabean oil futures markets last week.

However, while China's recent huge purchases of US soyabeans and soyabean oil was evident in published US official statistics, the same cannot be said for its demand for palm oil. But the local market, nonetheless, joined the global edible oil bandwagon for the ride up the price chart to an eight-month high of RM2,540 a tonne last week, basis the third forward month contract, in the expectation that Chinese demand would be exhibited by way of a huge bulge in the latest estimates for palm oil exports.

In that expectation, market players were disappointed.

Export monitor Intertek Agri Services' 613,677-tonne estimate for palm oil exports in first half April represented a modest 22,000-tonne or 3.74 per cent increase over that for first half March. But it was Societe Generale de Surveillance's estimate of 582,823 tonnes, down some 9,000 tonnes or 1.56 percent that demoralised the bulls on that day, sending them running for cover in a frantic rush for the exits.

Market players' nerves, however, had steadied considerably by last Friday. The actively-traded July 2009 contract, on a third-month forward contract basis, settled last week at RM2,435 a tonne, still up RM136 or 5.92 per cent over the week despite the knock on the head to confidence.

Conclusion: The technical indicators point to a loss of bullish momentum, but no clear indication that the short-term bull has run its course.

Volatile trade with wild price swings are likely to be the order of the day. The short term support level is RM2,270.