The new shortened trading week will be rife with economic data and could provide extreme price movement in the equity markets as well as other markets influenced by U.S. interest rates and the U.S. dollar.
Energies
July crude oil closed at $65.20 per barrel, up $1.02 after Thursday’s sharp decline. The selling on Thursday was viewed as overdone by traders and bargain hunters who emerged on Friday, and information from Nigeria continues to threaten supplies. The expected holiday demand for gasoline in the face of low supplies also prompted short-covering and new buying in energies. The continued rhetoric from Washington about seeking alternative energy sources does not play well considering any alternative source is a long way off and dependence on foreign oil along with lack of refining capabilities will continue to influence prices. Look for wide price swings on any new fundamentals affecting supply/demand. We prefer the sidelines.
Interest rates
September Treasury bonds closed at 109-08, down 1/32 with the September Eurodollar closing at 9469, up a half tick and the September 10-year note up 1.5 ticks to 106-20.5. Treasury prices remain under pressure as the economic data mysteriously shows a stable U.S. economy even though existing sales for houses were sharply lower. We, however, feel the numbers are as reliable as the analysts’ erroneous estimates of late and would base our opinions on the “real world” where housing and auto industries are in a downward spiral. The related industries that provide support to autos and housing are also in trouble. The U.S. economy is soon to be recognized as in a freefall with the base a long way off. Add to call positions.
Stock indexes
The Dow Jones industrials closed at 13,507.28, up 66.15 points after Thursday’s sharp decline. The S&P 500 gained 8.22 points to 1,515.73 and the Nasdaq gained 19.27 points to 2,557.19. For the week the Dow lost 0.36%, the S&P 500 lost 0.46% and the Nasdaq lost 0.05%. Some individual company stock prices accounted for much of the relative strength on Friday but we continue to project a sharp decline in prices as the economic and corporate data begins to deteriorate at a quickening pace. Implement hedging strategies.
Currencies
The September U.S. Dollar Index closed at 8202, down 8 points against the euro, which gained 17 points to 13502. Other currencies lost some ground against the U.S. dollar — the Swiss franc lost 5 ticks to 8219, the September yen lost 23 points to 8335, and the British Pound lost 14 points to 19822. The weak housing report on existing sales provided the impetus for the dollar weakness against the euro but was about flat against other currencies. We once again suggest the sidelines.
We prefer the long side of the Swiss franc.
Copper
July copper closed at $3.3205 per pound, up 14¢ on heavy short covering after Thursday’s sharp sell off. A rumor about a build-up in Shanghai Futures Exchange inventories never materialized and traders covered shorts. So-called bargain hunters took prices higher but how one can consider $3.00 copper prices a bargain with the declining demand from housing and auto industries is a mystery. The only demand these speculators are betting on is continued growth in the Far East, but reports are suggesting the Chinese economy, for instance, is considered overheated by that Government and certain measures to curtail development may be under way. Should any indication of a leveling off of demand from China materialize, copper prices could collapse. That seems like a possibility and we would retain put positions and roll forward as necessary. Copper inventories at the London Metal Exchange warehouses dropped by 1,975 metric tons on Friday to 134,125 and weaker U.S. dollar helped provide the price gains on Friday. The Comex inventory data released late Thursday showed a decline of 394 short tons to 30,227.
Precious metals
June gold closed at $655.30 per ounce, up $2.00 after a report that North Korea had fired missiles into the Sea of Japan. July silver gained 8¢ per ounce to $13. Metals were supported by the weaker U.S. dollar. Platinum, however, lost $12.90 per ounce to $1,277.80 and June palladium lost $1.30 per ounce to close at $367.80. We prefer the sidelines in precious metals although continuing weakening in the U.S. dollar prompted by any weak U.S. economic data and/or lower U.S. interest rates could be supportive of metals.
Grains and oilseeds
July corn closed at $3.76 per bushel, down 1/2¢ but September gained 1/2¢ to $3.77-1/4 and December was up 2-1/4¢ to $3.75 in choppy two-sided trading. Short covering late in the session after early losses helped prices stabilize. Recent reports indicating a preference for the use of sugar in the production of ethanol also weighed on prices. Commodity funds were noted sellers. We prefer the sidelines. July wheat closed 10¢ higher per bushel to $5.01 as unfavorable weather prompted concern along with tight global supplies. We could see further gains early in the new week on any weather problems internationally, but prefer soybeans to wheat. July soybeans closed at $8.12-1/2 per bushel, up 7-1/4¢ with November also gaining 7-1/4¢ to close at $8.41-1/2. Speculative buying and short covering were the main feature coming into the long holiday weekend. Weather concerns also were a factor in the buying along with anticipated demand from bio fuel production expectations could help prices gain additional upward momentum. We have liked soybeans since the mid $5.00 per bushel level and still like the upside potential. Our initial target of $8.00 was exceeded and we now have an eye on the $8.75 to $9.00 level basis November. Stay long and add on dips.
Coffee, cocoa and sugar
July coffee closed at $1.1290 per pound, down 45 points on profit taking from early session highs and prices went into a technical downside gap created on Thursday. Because we apply technicals to determine how far prices can be taken after a fundamental influence starts the move, we need to follow the technicals as well. With no frost in Brazilian groves in Northern Parana province, we see no impact on supplies at this time. We prefer the sidelines in coffee.
July cocoa closed at $1,920 per tonne, down $23 on profit taking after recent price gains in front of the long U.S. holiday weekend. We would await fundamental information on cocoa perhaps as early as Wednesday from the Ivory Coast before making any trading suggestion. Otherwise stay out for now. Sugar has finally become interesting with the action this week reflecting the IAE recommendation that sugar rather than corn should be used for producing ethanol. Brazil is already using sugar for ethanol.
July sugar gained nearly 1/2¢ per pound to 9.42¢ on short covering and trade house buying. Producer selling failed to stem the gains to five-week highs and we could see the upward momentum continue this week. We would put on some longs here with stops but add to those longs on any breakout through 10¢ per pound basis the July or October contracts.
Cotton
July cotton closed at 51.14¢ per pound, up 1.05¢ on continued short covering after losses on Wednesday were followed by sharp gains on Thursday. We could have seen the bottom on a technical basis and weekly USDA export sales and shipments figures were deemed positive for cotton. Any long positions should be accompanied by stop protection.
