September copper seems to be recovering after a sharp decline, but slowing U.S. housing and auto demand should cause prices to go back down.
With the labor situation deteriorating and the U.S. housing and auto industries in a tail spin, a Recession could easily be looming. On a weekly basis about 300,000 workers stand in line for the first time to collect unemployment benefits. The problem for the United States is that each worker who used to pay “one dollar” in taxes now “draws “two dollars” in unemployment benefits. That’s a differential of “three dollars” for the U.S. coffers. We maintain that the unemployed or laid off workers contributed to the earnings gains so vividly expanded upon by the optimists. I fully expect the results to start to emerge in the corporate board rooms and on the “ticker tape.” The ongoing hostilities in the Middle East are also a significant factor in the market place.
Copper
September copper was up 60 points in afternoon trading at $3.4825 per pound following a sharp decline earlier after news that the striking union workers at Chile’s Escondida mine had resumed talks with management. We still feel the demand for copper will decline sharply with the slowing demand from the U.S. housing and auto industries. Hold those put positions.
Interest rates
September Treasury bonds closed at 108-09, down 12/32 even after the Federal Reserve held the Fed Funds rate at 5.25%, the first pause after 17 straight increases. The stronger than expected 1.4% increase in the July retail sales on Friday negated the rate pause and led to additional ideas of further rate increases. Stay long the bonds.
Stock indexes
The Dow Jones industrials closed at 11,088.03 on Friday, down 36.34 points with the S&P 500 losing 5.07 points to 1,266.74. The Nasdaq lost 14.03 points to 2,057.71. For the week the losses were 1.37%, 1% and 1.31% respectively. Disappointing reports from chip makers drove tech stocks lower and dragged the rest of the market with it. The increase in retail sales was also a factor indicating the possibility that while the Fed held off this week on a rate increase, further increases are now expected. Maintain hedge positions.
Currencies
The September U.S. Dollar Index rose on Friday to 8539, up 44 points. The euro lost 76 points to 12751, the Swiss franc, 64 points to 8075 and the Japanese yen 82 points to 8637, all basis the September futures contract. The strong U.S. retail sales report was the main factor in the currency pits. We prefer the sidelines in all but the Swiss franc, which we view as a good buy at current levels.
Energies
September crude oil closed at $74.35 per barrel, up 35¢ but down 0.6% for the week on the back and forth reports from the North Slope of Alaska tied to the damage to the pipeline. We prefer the sidelines but once again look for prices to stabilize around the $40 to $45 per barrel level once a resolution to the Mid East crisis is forthcoming. The “wild card” in the price of crude is the production of Iran and Venezuela where the U.S. is vilified.
Precious metals
December gold closed at $644.40 per ounce, down $1.60 on fund selling and profit taking after the market failed to hold early gains. September silver closed at $11.885 per ounce, down 22¢ per ounce following gold. October platinum closed up $3.90 per ounce to $1,254.40, while September palladium lost 45¢ per ounce to $322.30. Heavy fund long liquidation was the prime mover in the declines. We prefer the sidelines.
Grains and oilseeds
December corn closed at $2.41-3/4 per bushel on a larger than expected production estimate from the USDA. Stay out for now. September wheat closed at $3.73-3/4 per bushel, down 12-3/4¢ on fund sales and a lack of support in the news after the bearish USDA report. Stay out for now pending clarification and outside analyst reports from the field. November soybeans closed at $5.68-1/4, down 6¢ on favorable crop condition and weather even though production figures were supportive. We like the beans and view the selling in conjunction with the selling in the grain pits as a buying opportunity.
Coffee, cocoa and sugar
September coffee closed at $1.0430 per pound, down 1.25¢ with December losing 1.2¢ to $1.0835. Funds were noted sellers across the board in the commodity pits on Friday and we prefer to stay out of their way. September cocoa closed at $1,559 per tonne, up $2.00 while December lost $4.00 to close at $1,602 per tonne. Spreading was the main feature with short covering in September against the rolling of short positions to December. Speculator buying was met with selling on dollar strength. We prefer the sidelines until we see some signs of a breakout from the recent range or fresh fundamentals. October sugar closed at 13.36¢ per pound, down 53 points. Heavy fund long liquidation along with commercial sales was the main feature in the session. It appears the attempts at running prices up through resistance have failed for the time being.
Cotton
December cotton closed at 55.74¢ per pound, down 1.12¢ tied to the bearish USDA August supply/demand report. We would wait before looking at cotton again until it gets to the 50¢ to 52¢ level basis the December. Otherwise stay out. There are better opportunities elsewhere.
