Interest rates: June Treasury bonds closed at 118 17/64ths, up 11.5/64ths after a report from the U.S. Commerce Department showing tame inflation for February. Money was once again moved from equities to the relative safety of U.S. treasuries. We look for further declines in yields and price gains in treasuries.
Stock indices: The Dow Jones Industrial average closed at 12,216.40, down 86.06 on Friday for a number of reasons, not the least of which was the slowing consumer spending which no doubt will add to the woes for corporations. Financial stocks continued to weaken tied to credit related problems and retail company earnings, i.e. J.C. Penney worse than expected. The S&P 500 closed at 1,315.22, down 10.54 with the Nasdaq losing 19.65 points to close at 2,261.18. For the week the Dow lost 1.2%, the S&P 500 1.1% but the Nasdaq managed a weekly gain of 0.1%. We continue to recommend implementing hedging strategies. We feel no amount of "fiscal stimulus" will help the U.S. economy since any family receiving the "meaningless" $1,200 check will only apply it either to a mortgage payment, a car payment or credit card payments. Mortgages are being foreclosed on, cars are being repossessed, and credit card debt is burgeoning to the highest level ever. The U.S. economy, once again in our opinion, is in recession regardless of whether it meets the "dictionary" description of recession.
Currencies: The June U.S. dollar index closed at 7203, up 11 points against losses in the June euro of 17 points to 15703, the Swiss franc 30 points to 10024 and the British Pound 118 points to 19790. The June Japanese yen managed a gain of 44 points to close at 10100. The U.S. credit crisis and the continuing developments within the financial industry the main concern among traders worldwide. We prefer the sidelines with the exception, as usual, of the Swiss Franc which we feel should be bought on any declines as we have since the 73¢ level.
Energies: May crude oil closed at $1.0562 per barrel, down $1.96 after trading as high as $1.0763 tied to a disruption caused by a bomb attack on Thursday. The pipeline system was restored and prices declined. May heating oil closed at $2.9876 per gallon, down 4.99¢ with May gasoline closing at $2.7135, down 1.8¢ per gallon. As we have stated in prior comments, the energy complex is susceptible to any reports either in favor of supply or demand. Therefore we continue to prefer the sidelines but with a long-term view that prices should decline to the $50 to $60 per barrel level for crude oil
Copper: May copper closed at $3.8315 per pound, down 4.15¢after recent gains tied to power shortages in Chile that could affect copper production. Expectations on Thursday that inventories at the Shanghai Futures Exchange would decline also prompted the rally on Thursday. Friday was a reaction to the rally in the dollar and general commodity price declines especially in the soybean and wheat pits in Chicago and the precious metal markets in New York. We continue to feel a weakening demand tied to a U.S. recession will eventually weigh on prices for copper.
Precious metals: April gold closed at $930.60 per ounce, down $18.20 with May silver losing 61c per ounce to close at $17.94. April platinum lost $5.90 to $2037.80 but June palladium gained $1.10 to close at $454.90 per ounce. The rally in the dollar and weak energy prices prompted the selling in metals which usually attract investors as an alternative investment to the dollar. We prefer the sidelines but could see metals rally once again on further weakness in the U.S. dollar tied to lower interest rate expectations.
Grains and oilseeds: July corn closed at $5.73 ¾ per bushel, up 6 1/2¢ tied to bullish expectations for acreage plantings expected on Monday. Fundamentals for corn remain positive and an expected drop in acreage from 2007 with no change in demand supporting prices. We like corn from here against wheat and beans. July wheat closed at $9.96 per bushel, down 21 1/2¢ on profit taking in front of the USDA report due on Monday. We prefer the sidelines until after we view analysis of the report. July soybeans closed at $12.85 per bushel, down 57 ½¢ on long liquidation in front of the USDA planting intention report due on Monday and the end of month and quarter position squaring. Stand aside until after the report
Coffee, sugar and cocoa: May coffee closed at $1.30 per pound, down 2.55¢ after trading as low as $1.2945 during the session Friday. Roaster buying and end of month position squaring took prices back off the lows prompted by fund long liquidation as the U.S. dollar posted gains. We could see a further rebound in coffee if the U.S. dollar continues its recent decline against expectation of still lower U.S. interest rates. Otherwise stand aside. May cocoa closed at $2,383 per tonne, down $69 tied to weakness in other agricultural commodities tied to the strength in the U.S. dollar. However technicals could prompt further selling on any break through support levels. Stay out for now. May sugar closed at 11.73¢ per pound, down 40 points on speculator selling that ran into commission house sell stops. The strong dollar on Friday once again the reason for selling in dollar denominated commodities. Trade selling also a factor during the session. Lower production was reported from Russia of 458,400 tons of refined sugar from January first through March 26th against 960,800 tons but higher sugar prices in Brazil’s Sao Paulo state where harvesting just began, rose during the week. We prefer the sidelines in sugar.
Cotton: May cotton closed at 71.68¢ per pound down 1.22¢ on weakness in other agricultural commodities and a stronger U.S. dollar. On Monday the USDA will report cotton acreage and we would not initiate any position until after the report can be disseminated. We like cotton and unless there are surprises with the acreage report, expect lower acreage will prompt new buying. Wait and see.
John L. Caiazzo
Futures@acuvest.com
www.acuvest.com
