Very quietly compared to all the noise about the big bailout proposal from the US Government and the other move for the Fed to offer a lifeline to struggling mutual cash management funds, new steps to relieve distressed commodities markets were launched Friday by US regulators after Lehman and AIG woes triggered a wave of selling and emergency actions by exchanges earlier in the week.

The Commodity Futures Trading Commission, the main regulator of US commodity markets, said it was ”prepared to provide temporary and conditioned hedge exemption relief for firms taking on swap positions from distressed companies”.

The move would allow Wall Street’s investment banks and trading companies to take over some large commodities’ positions held by Lehman Brothers and AIG, known as swaps, without surpassing limits set by the regulator and the exchanges on speculative limits.

”This will allow for continued risk management and orderly functioning of the markets,” the CFTC said in the statement.

That means in particular the huge oil market will be stable.

AIG acts as a counterparty to a substantial portion of the $US30 billion invested in the DJ-AIG commodity index, the second most popular benchmark in the asset class. Lehman Brothers was also a significant player in commodities markets.

The CFTC added that it was coordinating with commodity futures exchanges to facilitate rare block trading, which allow the transfer of large positions. That would allow the people liquidating Lehman and winding up AIG’s speculative positions to handle large groups of deals with the same counterparties.

“CFTC staff is engaged in heightened monitoring and surveillance of financial company single-stock futures traded on futures exchanges – in coordination with the SEC’s emergency action on short selling and in our collective effort to prevent manipulation of financial stocks,” the Commission said.

That will be significant as already there are traders developing ways of circumventing the ban on short selling: one is sell the S&P500, then hedge the stocks you don’t want; in effect you short sell the stocks remaining in the position unheeded.

The move links to the one on Friday where cash funds were guaranteed. Many mutual funds have commodity based offerings and investors use the associated money market fund when moving their money from fund to fund..

The US Treasury on Friday rushed to the aid of ailing money market funds, saying it would guarantee the holdings of funds as it attempted to prevent the spillover of the financial crisis to the $US3.4 trillion business.

In establishing the temporary guarantee program for the US money market mutual fund industry, the Treasury tapped the Exchange Stabilisation Fund, which was established by the Gold Reserve Act of 1934 in response to the Great Depression. The support will be done via the Fed.

The move to shore up the fund is designed to allow the Treasury to insure the holdings of any publicly offered eligible money market mutual fund – both retail and institutional – that pays a fee to participate in the program.

It came after the Reserve Fund was forced to reveal it was ‘breaking the buck’ in paying investors 97c in the dollar and not the usual $1 in redemptions after being exposed to $800 million worth of Lehman Brothers debt that is facing big losses.

Crude oil rose Friday in New York, capping the biggest three-day rally in almost a decade, on speculation government measures to resolve the bank crisis will spur the economy and bolster petroleum demand.

That’s the theory, the reality is that there will be no impact on the US economy and oil prices will start sliding very quickly.

Oil rose 6.8% on Friday as output disruptions from hurricanes in the US and attacks in Nigeria’s main oil producing region continued to have as much impact on price and sentiment as what was happening in the sharemarkets and credit system.

October crude futures jumped $US6.67 to settle at $US104.55 a barrel in New York after rising 7.4% to touch a day’s high of $US105.25 a barrel.

Oil prices rose 15% last week, the biggest three-day rally since December 1998 as shorts scrambled to cover short positions.

That lifted the week’s performance to a 3.3% gain, the first weekly rise since mid August. It’s still down 29% from the high of $US147.27 reached on July 11.

The October contract expires tonight, our time, so when the Fed and the US Government moved on the mega bailout, traders decided to cover their positions.

Inventory positions in the US in the wake of twin Hurricanes Gustav and Ike will be key figures for the market this week.

Energy companies have resumed about 12% of oil production and a quarter of natural-gas output in the Gulf of Mexico after shutting almost all of it before the hurricanes.

The Gulf accounts for about 26% of American oil output and around 14% of gas production.

In Nigeria, Shell warned that the recent escalation in militant attacks would hurt earnings. The country has lost about 280,000 barrels a day from the violence on top of production already shut-in, according to government officials.

November Brent crude rose $US4.42, or 4.6%, to $US99.61 a barrel in London.

Gold futures dropped sharply on Friday to end a very volatile week.

But it still had its biggest weekly gain in almost nine years on the turmoil in the financial markets.

Comex December gold futures fell $US32.30, or 3.6%, to $US864.70 an ounce in New York, but the metal jumped 13% over the week, up $US100.20, the best since October 1999.

Comex December silver futures dropped 22.5 USc, or 1.8%, to $US12.475 an ounce on Friday. That left it up 16%, the best since early 1987.

Gold is now up 3.2% so far this year, while silver has dropped 16%.

Comex Gold for immediate delivery rose $US18.26, or 2.2%, to $US869.23 on Friday.

Comex December copper futures rose 11.05 USc, or 3.6%, to $US3.1765 a pound in New York. But that still left the metal down half a per cent over the week.

On the London Metal Exchange, three month copper rose $US311, or 4.6%, to $US7,060 a tonne, or $US3.20 a pound. The price is up 5.8% this year.

Nickel however had its biggest weekly drop in almost four years as stocks of the metal rose to a nine-year high, signalling weak demand from consumers, led by stainless steel producers.

London Metals Exchange stock rose 0.9% to 52,326 tonnes, the highest since July 1999.

That was after a 0.6% dip in second quarter stainless steel output this year, compared to the same quarter of 2007.

Three month nickel ended at $US16, 843 a tonne. The fall was more than 12% for the week, the biggest since October 2004.

The International Nickel Study Group said the world’s nickel surplus rose for a third month in July as consumption of the metal dropped to a nine month low.

The INSG said nickel production of the metal exceeded demand by 9,900 tonnes tons in July, compared with a surplus of 7,700 tonnes in June.

With the recent correction price moves on the commodities markets, it’s useful to make regular updates to see whether it’s just a short-term retracement or a real downtrend.

Because the fundamentals have not really changed, most of the investors believe that the recent fall in commodities prices is just a healthy pause in the global long-term bullish trend. Therefore, on the charts, intermediary supports that may represent opportunities to enter new long positions are particularly watched.

This has been the case on the Nickel market. In our last update, posted on August 1st, we were saying that a rebound was likely soon as the price action was just about to reach an intermediary support, around $18,000.

The rebound occurred. Let’s have a look at the chart. Actually the price action posted a low on August 5 at $17,445 then bounced back sharply. A ton of Nickel is now trading around $21,000. It’s a 20% rise in 3 weeks. As expected, the previous highs posted in early 2004 and in May 2005 (points D and E on the chart) became the new low (point F).
Nickel prices had plunged so deep the last few months that a lot of mines had stopped temporarily their production. The production costs are high therefore it was not profitable anymore to run them. For example, the Swiss company Xstrata announced that it had closed its Falcondo mine during 4 months.

Now stainless steel demand appears to weaken. The Chinese Shanxi Taigang has announced that it would decrease its nickel production by 50% as the demand of stainless steel is slowing. This does not back the prices rebound.

Therefore the rebound on Nickel prices is likely to be a technical correction rather than the beginning of a new momentum on the upside. Don’t forget that the prices plunged by 67% from May 2007 to August this year.

The MACD and the RSI are well oriented, it’s a bullish configuration. The RSI shows that indeed the nickel was recently obviously oversold. Both of those indicators argue for a further rebound on the near-term.

However we will wait more to see if there is a longer-term momentum that is building and that may create a new uptrend. For the moment the level of $25,000 should be a strong resistance for the current price action. This target is a previous support line where the prices had rebounded in August and in December 2007 (points B and C). Once again, previous lows will be probably the new highs. Consequently a consolidation phase is likely during the coming months between $18,000 and $25,000.

A bullish momentum and a new uptrend would be possible if the resistance at $25,000 is cleared. On the other side, the bearish trend would continue if the price action breaks down below the support of $18,000.

The market is up 8. An unremarkable day. Financials down 0.7% after a dull performance overnight in the US. Resources up 0.2% after a strong lead from BHP, RIO and energy stocks in the US. Metal prices up. The SFE Futures were up 15 this morning.

Dow up 40. Up 69 at best. Down 95 at worst. Main Point: Financials down 1% on Freddie Mac and AIG’s ugly results and Morgan Stanley freezing home-loans. Energy and resources outperformed on good results. 6 out of 10 sectors up – indexes at 6-week highs. Dow encouragingly turned around a 0.7% loss to make a 0.3% gain holding onto the 331 or 3% gain yesterday. Large cap techs offset bad news in the financials. Nasdaq up 1.2% on better-than-expected results from Cisco. Oil price down 5.4% for the week already. Resources up 1% with BHP and RIO up strongly – up 4.36% and 4.72%. Energy outperformed – up 1.9% on better-than-expected results from Devon Energy. Refiners up with Tesoro and Valero up 12% and 7%. Sunoco up 3.3%. Freeport-McMoRan up 11%. Morgan Stanley froze the home-equity lines of credit for thousands of clients while their homes dropped in value. Telecoms down 1.4% - underperformed – Sprint Nextel and Qwest both reported a lost subscribers. USD climbed to 8-week high against the euro and 7-month highs against the yen – the global slowdown and less fears of inflation are helping the USD to rise.

• Both BHP and RIO up in ADR form overnight, 4.36% and 4.72% respectively. BHP down 6c to 3716c. RIO up 110c to 11550c.
• Metals mostly up overnight – Nickel up 1.17%, Zinc up 1.1% and Lead 2.53%. Aluminium up 0.21%. Oz Minerals up 2c to 176c.
• Oil price down 14c to $118.57 after the U.S. Energy Department’s EIA said crude inventories increased by 1.7m barrels to 296.9m for the week ended Aug. 1, slightly more than the 1.2m-barrel increase expected. Woodside up 77c to 5149c.
• Gold down $3 to $878.80. Newcrest down 40c to 2500c.
• US Bonds down with the 10 year yield up to 4.05% from 4.02%.

Nickel and copper stocks mostly upon a small bounce in metal prices (although copper futures dropping intraday). KZL up 2%, JML up 4,4%, WSA up 0.4% and PAN up 3.5%. Banks down again, NAB down 2.1% and CBA down 0.8%. Big industrials up with a sentiment change towards the consumer discretionaries after the RBA flip flopped their bias towards rate cuts on Tuesday. WOW up 1.5%, WDC up 1.5% and WES up 1.2%.

Unemployment numbers are out at 4.3% - steady on last month – new jobs strong. A$ jumped on the numbers. The European Central Bank makes an interest rate decision tonight. Expected to remain hawkish on rates and leave them where they are. Dow Jones Futures down a worrying 47 at the moment. Enough to keep you out of an overnight trade.

Company news

• Tabcorp (TAH) up 6% early on results - booked a hefty loss but underlying results in-line and there was some relief they were not worse. Market happy with solid underlying earnings and dividend being kept.
• Connecteast (CEU) down 16% early on “disappointing” first week of tolling falling to half the rate of toll-free period - UBS also downgraded the stock.
• Minara Resources’ (MRE) weak 1H report shows net profit down 80% on-year with no interim dividend – below consensus. Our analyst thought they’d fall over…but only down 2.7%.
• Fortescue (FMG) signs a rail and port agreement with Atlas Iron to give AGO access to their rail and Herb Elliot Port – Atlas Iron (AGO) up 14% early on the announcement.
• West Australia Newspapers (WAN) downgraded by brokers on poor FY08 results yesterday and cautious FY09 outlook – seen as a warning to all media companies….but up 4.13%.
• News Corp (NWS) kept mostly at a BUY by brokers after they posted results and positive guidance yesterday. A falling A$ helps. Down 3.11% or 52c to 1621c.
• ResMed (RMD) had its target price boosted by Credit Suisse after results yesterday showing positive top-line revenue growth. Up another 3% today.
• UBS has downgraded the Infrastructure sector after reviewing their cost of equity assumptions.
• Merrills says CBA’s crucial results on the 13^th are unlikely to surprise due to fairly good transparency around solid volume growth, improved margins and bad & doubtful debts at 23bps of total loans. Says CBA is under-provisioned yet has limited exposure to single-names. Down 25c to 4360c.
• Merrills expecting Telstra’s August 18^th FY08 result to be “very strong” with net profit up 14.4% and management’s long-term guidance to be upgraded. TLS up 4c to 453c.
• St George Bank has a briefing next Tuesday. SGB up 13c to 2898c.
• Corporate Express (CXP) downgraded by brokers post yesterday’s results showing falling customer sales and deteriorating market. Down 2%.

Nickel had its biggest weekly decline in London in four months as stainless-steel mills, the biggest users of the metal, said demand is weakening. The price fell by around 8% over the week and the closing level for three month metal of $US19,250 was the lowest in two years and means the price has more than halved after peaking at close to $US55,000 a tonne in May of last year. Metal industry sources said that Jinchuan Group Co., Asia’s biggest nickel producer, cut prices by 11%, effective Friday. Acerinox SA, the world’s largest stainless-steel producer, and Finland’s Outukumpu Oyj said that orders from the construction sector had slowed. The London Metal Exchange three month nickel price fell as much as $US535, or 2.9% on Friday, to $US18,240 a tonne, the lowest intraday price since June 15, 2006. It finished at US19,250 for three months metal or $US19,005 a tonne for cash metal. It took the week’s fall to around 8% and means the metal has dropped by almost 30% so far in 2008. That makes it the worst performer among the LME quoted metals. LME-monitored copper stockpiles jumped 2,600 tonnes, or 2% to 133,475 tonnes on Friday, the highest since March. They have increased 9% this month. In New York Comex September copper futures rose 2.8 USc to $US3.605 a pound on Friday. The metal price is up 1.5% in the past year. Copper fell 2.2% on Thursday. Friday’s rise was just 0.8%.   Oil prices dropped again Friday, ending more than $US5 over the week with crude for September delivery down $US2.23 to end at $US123.26 a barrel.That was the lowest closing price since June 4. For the week, prices fell $US5.62. Traders said that the price hit an intraday’s low of $US122.50 a barrel.

Prices have slipped in recent days as reports have confirmed that US demand has dropped, largely due to high fuel prices.

A US Energy Department report released Wednesday showed that gasoline demand in the US last week had fallen 2.4% from the same period last year. World prices are off $US24 a barrel from a record trading high of $147.27 set on July 11.

Wheat futures rose 3% on Friday, offsetting some of the 8.4% drop in futures prices this year.

September wheat rose 23.25 USc, or 3%, to $US8.11 a bushel on the Chicago Board of Trade. The most-active contract rose nearly 1% last week, the first rise in the past four weeks.

While down in 2008 so far, the price is still up 28% in the past year, touching a record $US13.495 on February 27. That meant the price had more than doubled over the previous 12 months, so the slump since then has been substantial.

Chicago corn futures rose for a second straight day Friday.

Corn prices are down 21% so far this month as the price surge of June linked to the Midwest flooding has dissipated.

December corn futures rose 4.5c, or 0.8%, to $US5.965 a bushel on the Chicago Board of Trade, after dropping on July 23 to $US5.6275, the lowest since April 1. The price still fell 5.1% over the week, which was the fourth weekly decline in a row.

Corn fell 13% from July 16 to July 23, the biggest five-day drop in almost 20 years. But futures prices are still up 82% over the last year.

Prices have fallen as US crop conditions have improved in the aftermath of the floods.

October sugar futures 0.03 of a cent, or 0.2%, to 12.27 USc a pound in New York. The price is up around 13% so far this year.