September wheat closed at $3.88-1/2 on Friday, up 3/4¢ with December up 1/2¢ to $4.08. According to technicians, both September and December wheat on the Chicago Board of Trade closed below their 100-day moving averages. Technicians are expected to sell into it on Monday. But if they do, I would look to the long side of December on any price decline.
Grains and oilseeds
September corn closed at $2.37-1/4 per bushel, down 1/2¢ with December losing 3/4¢ to $2.5-1/2. One agricultural consulting firm suggested that we could see corn in a sideways pattern for a while due to the conflicting weather expectations. I concur and would stay out for now but with an eye to the long side should weather become a factor in corn growth prospects. November soybeans closed at $5.98 per bushel, up 3¢ while December meal lost $1.30 per ton to $169.40. December soybean oil gained 54 points to close at 27.31¢ per pound. This is what usually occurs when demand for one of the products exceeds demand for the other. We continue to like beans from here.
Interest rates
September Treasury bonds closed at 108-09, up 18/32 tied to a slowing economy and the perception among traders that the Fed should not continue its rate increase policy. However, Federal reserve Chairman Ben Bernanke probably does not want to be responsible for a “runaway inflation” and has been keeping up the charade created by former Chairman Alan Greenspan. By charade, I mean the overly ambitious and obsessive concern about potential inflation while the U.S. economy is headed towards recession. This coming week will present a clearer picture of the U.S. economy with the jobs report for July and other economic data from the manufacturing and services sectors. Personal income and factory orders reports are also expected and could cause severe market moves in Treasuries and equities. We continue to feel “sanity” will win out and the Fed will stop raising rates and perhaps shed some light on whether a rate cutback is in order. Stay long the bonds and Eurodollars.
Stock indexes
The Dow Jones industrials closed at 11,219.70, up 119.27 while the S&P 500 gained 15.35 points to 1,278.55. The tech heavy Nasdaq closed at 2,094.14, up 39.67 points. The market is now expecting a cessation of the rate increases buoyed by the weakening U.S. economic data. For the week the Dow was up 3.23%, the largest weekly gain in a long time. The S&P 500 gained 3.08% and the Nasdaq was up 3.65% for the week. We prefer the sidelines and in the case of investors with large equity positions, a shift to the Treasury market or the application of hedging strategies.
Currencies
The September U.S. Dollar Index closed at 8519, down 44 points against the Euro, which gained 57 points to 127920, the Swiss franc gained 32 points to 8149, and the yen gained 83 points to 8778. The prospect of a pause in the U.S. rate increases by the Fed prompted the buying in Treasuries and equities at the expense of the U.S. currency. We could see more of the same this coming week but with the deluge of economic data, wide price swings are possible. Stay out or add to Swiss franc positions.
Energies
September crude oil closed Friday above $73 per barrel but the story was in the natural gas futures market. September gas futures closed at $7.184 per million BTUs, up 6.1¢ after a 16¢ gain on Thursday. Concern about dwindling supplies and withdrawals from storage prompted the new buying, which while high was still a long way from the $15 per million BTU highs seen a few months ago. We prefer the sidelines since the Middle East is a wild card and anything could happen. Stay out.
Copper
September copper closed at $3.5490 per pound, up 7.05¢ tied directly to the Chilean copper mine, the Escondida, where workers are preparing to vote on whether or not to strike next month. Stay out but hold onto those put positions. With the U.S. auto and housing industries closing measurably, the demand or need for copper will diminish and we could see a price collapse back to below $2.50 per pound.
Precious metals
December gold closed at $647.80 per ounce, up $2.30 after trading as low as $638 during the session. There was short covering in front of the weekend and with the hostilities in the Middle East still raging, traders did not want to go home short. I see no reason to buy gold except in the form of jewelry. Silver is basically the same story, following gold, closing at $11.365 per ounce, down 2.5¢ basis the September contract. October platinum closed at $1,233.70 per ounce, down $8.30 while September palladium lost $6.30 per ounce to $314.15. Stay out for now. Gold benefits, or rather has benefited, by anxiety tied to the Middle East situation and the rallies in crude oil and copper creating an inflationary fear, which in the past has usually led to gold purchases. We don’t believe that so we prefer the sidelines.
Coffee, cocoa and sugar
September coffee closed at 99.40¢ per pound, up 2.6¢ while December was up 2.6¢ as well at $1.0350. We may have seen an interim bottom in coffee as funds and speculators bought after a strong finish in London. There were reports that Vietnamese growers have small amounts of Robusta coffee left after a drought reduced the crop, but expectations are that the next harvest will be bigger. Rain was expected during the weekend in Brazil’s southeast region, but it was not enough to cause the market to react. We once again like coffee from here but would watch weather reports from Brazil for any sign of beneficial rains. September cocoa closed at $1,492 per tonne, up $3 and remains in a trading range beneficial only to locals. I was a local once and know how it works. Stay out. October sugar closed at 14.76¢ per pound, down an $11.20 point and remains uninteresting.
Cotton
December cotton closed at 55.54¢ per pound, up 14 points tied mostly to the weak U.S. currency, which would make U.S. cotton attractive to overseas buyers. The market is in a trading range but could see some new buying on any decline basis the December to the 51¢ to 53¢ level. Otherwise there are other potential opportunities.
