Interest Rates: June Treasury bonds closed at 12709, up 10 ticks as money was moved back and forth between equities and the relative safety of treasury instruments. Unfortunately, with the amount of money need to “stimulate” the U.S. economy, I look for continued sales of government paper to willing buyers, if there are any. China is the biggest holders of U.S. debt and if they lost their “taste” for additional debt, there could be serious repercussions. For now we look for the opportunity to buy puts or sell futures on Treasury bonds. We do not see the possibility of lower rates given the current zero Fed funds rate.
Stock Indices: The Dow Jones industrials closed at 6,626.94, up 32.50 points with the S&P 500 closed at 683.38, up .83 points and the Nasdaq lost 5.74 points to close at 1,293.85. While there were modest gains on Friday, it proved to the worst week since November. The Dow lost 6.2%, the S&P 7% and the Nasdaq 6.1%. We continue to view the U.S. equity markets as over-valued based on what we see as earnings potential and once again, even more strongly than we have over the past year, we recommend implementing hedging strategies. We can provide assistance determining which financial instruments may successfully hedge current risk in securities.
Currencies: The June U.S. dollar index closed at 8909, down 69 points against gains in the Euro of 118 points to 12662, the March Swiss Franc 106 points to 8647, the Japanese Yen 37 points to 10235, the Canadian dollar 9 points to 7770, and the Australian dollar 23 points to 6352. The June British pound lost 19 points to close at 14092. The U.S. jobs report was a determining factor in currency trading and we continue to favour the long side of the Swiss Franc.
Energies: April crude oil closed at $45.52 per barrel, up $1.91 while April heating oil gained 6.27¢ to close at $1.2225 and the April unleaded gasoline contract gained 1.95¢ to close at $1.3322. There are reports that Venezuela would propose an additional output cut by OPEC based on oversupply and high inventories. We had expected some action to be taken on recent energy price declines, and continue to feel prices should stabilize between here and the $35 per barrel level basis crude.
Copper: July copper closed at $1.6980 per pound after reported drawdowns at the London Metals Exchange warehouses of 3,175 metric tons on Friday to 522,025. The buying in London carried over to the New York market and prompted carryover buying and short covering. The Comex inventory remained unchanged at 45,319 tons and the weekly report from the Shanghai Futures Exchange showed an increase of 10,136 metric tonnes to 38,468. We continue to view copper as overbought and suggest adding to put positions. The global recession will continue for some time and the demand for copper should decline further dragging prices lower.
Precious Metals: April gold closed at $942.70 per ounce, up $14.90 on concern over the weakness in equity markets worldwide. Unfortunately, after trading above $1,000 per ounce, prices declined nearly $100 per ounce and make this market too risky for small investors. However, the fluctuations make trading for professionals very attractive even on a day-trading basis. July silver followed gold to close at $13.3510 per ounce, up 21.6c. With the price of silver, anyone wishing to participate in precious metals should look at the long side of silver but not tied to technicals, only to the action in the U.S. dollar. Otherwise stay out. The “investment value” in precious metals is lacking for “prudent and conservative” investors. April platinum closed at $1,078.70 per ounce, up $14.10 while June palladium gained $3.70 to close at $204 per ounce. Traders should once again look at the short platinum/long palladium spreads. Otherwise a small position in palladium would be the way to participate in any expected further rallies in precious metals tied to declines in equities and the possible continued weakness in the dollar.
Grains and Oilseeds: May corn closed at $3.61 ½, up 3c tied to higher crude oil prices and the weakness in the U.S. dollar which usually attracts grain buyers to the U.S. markets. We could see further strength tied to improved export demand. May wheat closed at $5.27 per bushel, up 12c mostly tied to technicals after recent weakness. Commodity funds were noted buyers of around 2,000 contracts. Late selling on profit taking reduced gains. We prefer the sidelines in wheat. May soybeans closed at $8.67 per bushel, up 15c on speculative fund buying as was the case for wheat. Short covering also a feature. Tight supplies in the cash market added to the buying. We like soybeans from here but only with stop protection.
Coffee, Cocoa and Sugar: May coffee closed at $1.0720 per pound, down 1.5c on a lack of fresh fundamentals and tied to technicals. We continue to favour the sidelines. May cocoa closed at $2.271 per tonne, up $6.00 in light trading on Friday. Short covering the main feature on the weak dollar. Stay out for now. May sugar closed at 12.78c per pound down 5 little points and remains on our no interest list.
Cotton: May cotton closed at 41.55c per pound, up 17 points on short covering and the weaker U.S. dollar. Reports that China would increase reserves for cotton and other grains provided some support but after touching three-month lows, the rally has to be considered a technical correction. We prefer the sidelines.
John L. Caiazzo
Tel: (951) 693-9600 Fax: (951) 693-3170
Website: www.acuvest.com
E-mail: futures@acuvest.com
Information provided is from sources deemed to be reliable but not guaranteed. Futures and Options trading involve a high degree of risk and may not be suitable for everyone. John Caiazzo is a registered commodities broker with over 40 years experience in investments and opinions are his own and not of the Futures Commission Merchant he introduces his clients to.
