The U.S Dollar Index makes a small gain while crude and gold prices fall, and the past week has provided investors and traders with a plethora of information relating to everything from geopolitical events to economic data to corporate reports.
Energies
November crude oil closed at $56.82 per barrel, down $1.68 at expiration, which was the lowest price since June 2005. While OPEC is expected to cut production by 1.2 million barrels per day as announced on Thursday, some skepticism exists as to whether or not all the members and also non member Venezuela will comply. Weather will be a factor in the heating oil market where November closed at $1.68 per gallon, down 4.01¢, but natural gas gained $1.09 per mBtu to $7.2410. November unleaded gasoline fell to $1.4672 per gallon, down 2.22¢ as the end of driving season nears and supplies remain more than ample. We continue to prefer the sidelines.
Currencies
The December U.S. Dollar Index closed at 8606, up 4 points while the December euro lost 9 points to close at 12658, and the December Swiss franc lost 9 points to close at 7991. The December Japanese yen closed at 8495, down 37 points. A lack of any U.S. economic data scheduled for early in the week prompted traders to lighten up on currency positions in front of the Fed meeting on interest rates this coming week. We prefer the sidelines but still favor the Swiss franc.
Precious metals
December gold closed at $596.40 per ounce, down $6.10 after trying to hold above $600. Lower crude oil prices also weighed on gold, which historically has been a hedge against inflation. Unfortunately, its use in the world economy has been limited in recent years. Sporadic forays into higher prices sometimes prompted by geopolitical events are still of concern to those of us who believe gold is a “relic.” December silver lost 19.5¢ per ounce to close at $11.965 while January platinum lost $12.70 per ounce to $1,082.10 and December palladium lost $6.90 per ounce to close at $330.50. These markets are best left to the professionals and floor traders for now.
Interest rates
December Treasury bonds closed at 110-20, up 1/32 with the December Eurodollar gaining a half tick to 9461 and the December 10 year losing a half tick to 107-00.5. It’s expected the Federal Reserve will leave the overnight rate unchanged at 5.25% at its meeting this week due to what appears to be a slowing economy, which is tied to the declining demand for homes and autos, two major industries which provide income for a myriad of smaller suppliers. Stay with the bonds and Eurodollars.
Stock indexes
The Dow Jones industrials closed at 12,002.37, down 9.36, but still above the technically important 12,000 level. We see little importance in the overall spectrum of the U.S. economy in such a narrow gauge of 30 blue chips. The S&P 500 closed at 1,368.60, up 1.64 while the Tech heavy Nasdaq gained 1.36 points to 2,342.30. The Dow was affected early on earnings warnings from Caterpillar while other company reports were deemed marginally favorable. Continued expectations by the investing community for an “economic soft landing” are not in accordance with our work and we continue to expect a weakening economy and possibly a recession. Even if the Fed were to lower rates, it may not be in time to halt further economic declines, especially on the labor front. An “unemployed consumer does not consumer anything.” Neither does his family. Implement hedging strategies on large portfolios.
Copper
December copper closed at $3.4620 per ounce, down 4.75¢ on Friday on profit taking and weak energy prices. One analyst suggested copper prices move with energy prices because funds tend to trade all commodities in lock step from time to time. We rather support the theory that copper, quoted in dollars, moves conversely to the dollar more often than not and that the recent weakness is tied to the strength in the dollar. Unfortunately, should my scenario of lower U.S. interest rates develop, the dollar would weaken and may send copper prices higher. The only real negative on a fundamental basis is the lower demand for copper as demand for housing and autos declines. We still like the short side.
Grains and oilseeds
December corn closed at $3.12-3/4 per bushel, down 3-1/4¢ mostly on position squaring in front of the weekend. The recent move to higher prices was prompted by bullish data but has since lost steam. We could see technical selling come in early in the week. We would take profits, if any, and stand aside for now. December wheat closed at $5.05 per bushel, down 8¢ as speculator and local selling took profits in front of the weekend. Technicians will no doubt see a “topping action” developing and there is no point in fighting them. Technicians outnumber fundamentalists. Stay out for now. November soybeans closed at $6.06-1/2 per bushel, down 1-1/2¢ as December soybean meal gained $1.70 per ton to $180.40 but December soybean oil lost 37 points to 26.17¢ per pound. For the week November soybeans gained 15¢, meal 70¢ and oil 1.24¢. We like the long side of beans and would look to add to longs on any dip.
Coffee, cocoa and sugar
December coffee closed at $1.0205 per pound, up 20 points after early fund selling took prices lower. Industry and locals bought and pushed December up to $1.03 before locals decided late in the session to take profits. Weather in Brazil will direct pricing in the near term. Brazilian growers may be holding back for higher prices but Vietnam is currently expected to produce a larger crop. We prefer the sidelines. December cocoa closed at $1,434 per tonne, down $9 and remains on our “unwanted” list. The recent three-day strike in the Ivory Coast was suspended and beans are starting to move once again. Stay out for now until prices break out either way. March sugar closed at 11.71¢ per pound, up 12 points on spec and local buying late in the session.
Cotton
December cotton closed at 49.21¢ per pound on fund and spec buying late in the session. Volume was light but we still like cotton at current prices even though our own support level of 50¢ to 51¢ was breached. The market is now oversold and due for a bounce. Light positioning is suggested until prices move back above the 51¢ level.
