Nov. 27, 2006 — The U.S. Dollar Index lost ground against major currencies in the shortened holiday trading week. A half-day trading day in New York markets on Wednesday, the Thanksgiving Holiday on Thursday and a half-day on Friday made for some compressed market action. Anticipation of the Black Friday shopping spree, which comes the day after Thanksgiving, also was a factor in the retail sector. Retail chains offering deep discounts on just about everything to prop up sales may or may not have affected the overall consumption figures. We continue to be concerned the U.S. economy is faltering and the impact will be felt throughout the industrialized world as the United States is the “consumer of the world.”
Currencies
The March U.S. Dollar Index closed at 8327 on Friday in a shortened trading session losing 71 points against a 163-point gain in the March Euro to 13159, a 119 point gain in the December Swiss franc to 8285, and a 67 point gain in the March Japanese yen to 8761. We continue to favor the Swiss franc.
Interest rates
March Treasury Bonds closed at 113-15, up 8/32 on continuing concern about a weakening U.S. economy. The March Eurodollar gained 1 point to 9476 while the March 10-year note gained 2.5 points to close at 108-20. This coming week a number of economic reports will be issued and should dramatically move the markets tied to interest rates and the U.S. dollar. On Tuesday reports on durable good orders, existing home sales for October and consumer confidence for November will be released. On Wednesday we will be getting preliminary third quarter GDP figures from the U.S. government. We will also get new home sales for October. The Beige Book will also be released on Wednesday. On Thursday the government will release its monthly reading on the core PCE price index. We will also get a reading on the November New York National Association of Purchasing Management and the Chicago Purchasing Managers Index. We would hold off any new purchases in the Treasury markets but would add to longs on any declines prompted by surprises in the data. We continue to view the U.S. economy as deteriorating in a downward spiral toward recession.
Stock indexes
The Dow Jones index closed at 12,280.17, down 46.78 points with the S&P 500 losing 5.14 points to close at 1,400.95. The Nasdaq Composite Index lost 5.72 points to close at 2,460.26. With the market closed on Thursday and a shortened trading session on Friday, we will have to await the data early in the week to determine the impact on the interest rate market, the U.S. currency and ultimately the equity markets. We continue to suggest hedging strategies for any large equity portfolios.
Energies
January crude oil closed at $59.90 per barrel, up 66¢ with January heating oil gaining 2.83¢ to $1.7470 per gallon, and January unleaded gasoline gained four points to $1.5877 per gallon. Concern about export disruption in Nigeria after a major oil terminal was attacked was the main feature to the rally. We prefer the sidelines.
Copper
Metals markets were closed on Friday but they were traded electronically. March copper closed at $3.24 per pound, up 10.4¢ on short covering in front of the weekend and on technical consideration as prices traded through overhead resistance. We prefer the short side of copper t
Precious metals
December gold closed on the Comex at $629 per ounce up 30¢, but traded up to $638.90, up $9.80 in electronic trading on Friday. December silver closed in open outcry trading at $13.04 per ounce, down 4.5¢, but traded up 42¢ to $13.46 in electronic trading. January platinum closed at $1,154 per ounce in the pit, down $65.10 with December palladium losing $2.35 to $326 per ounce. It is difficult to analyze markets that trade electronically due to the holiday atmosphere and the lack of professional pit traders. Volume also was light in the after markets. We continue to feel investors should avoid precious metals. Gold will do what the U.S. dollar tells it to. Don’t waste time charting gold; it’s better to chart the dollar.
Grains and oilseeds
December corn closed at $3.69-1/4 per bushel, up 6-1/2¢, with March gaining 7-3/4¢ to close at $3.86. In a shortened trading session after the Thanksgiving Day holiday, the front months managed to reach new contract highs. We continue to prefer soybeans in this group. The ratio of corn, wheat and soybeans has historically been maintained even as markets tend to overreact on occasion to fundamentals specific to each commodity. March wheat closed at $5.19 per bushel, up 12-3/4¢ in a shortened pre-weekend and post holiday session. We prefer the sidelines. We see no point in “spreading the wealth” among the three markets when the lead market, soybeans, is enough. January soybeans closed at $6.84-1/4, up 10-1/4¢ with March gaining 10¢ to close at $6.96-3/4. January meal gained $2.70 per ton to close at $196.60 and January soybean oil gained two points to close at 29.30¢ per pound. Seasonal trends and positive export sales data along with strength in the other pits also provided the momentum for beans. We continue to like beans but would only add to positions on corrections.
Coffee, cocoa and sugar
December coffee closed up 15 points at $1.1555 per pound with March gaining 5 points to close at $1.2015 per pound. We prefer the sidelines. March cocoa closed at $1,495 per tonne, up $15 and remains in a trading range and on our “no interest” list. The weak U.S. dollar played a part in the rally. March sugar closed at 11.47¢ per pound, down one point on long liquidation by speculators but bumped against light trade buying. Sugar remains on our no interest list too. Stay out until we see some fundamentals that provide directional ideas.
Cotton
March cotton closed up 49 points on Wednesday at 52.12¢ per pound and could very well return to our “buy list” if the rally continues into early week sessions. We prefer to look at the long side once we see the first close through current resistance levels. Otherwise stay out for now.
