Interest Rates: June Treasury bonds closed at 125-29.5 down 1-21.5 as money moved from the relative safety of Treasuries back to the equity markets. We continue to suggest the sidelines after having advised clients to look at the short side of bonds a few commentaries ago. The banking system is in shambles in my opinion with the Government on one side and the banks on the other side of the dispute as to why they must accept government funding when they don’t particularly need it. The government obviously doesn’t want the weak banks identified in order to avoid a run on those banks but the strong banks don’t want the burden of government oversight on their business if they are in good shape.
Stock Indices: The Dow Jones Industrials closed at 8083.38, up 246.27 on Thursday spurred on by the Citigroup announcement of better earnings forecast for the first quarter. Other banks will be reporting this week. The S&P 500 closed at 856.56 up 31.40 while the Nasdaq gained 61.88 points to close at 1652.54. For the week the Dow gained 0.8%, the S&P 500 1.7% and the Nasdaq gained 1.9%. We view the rally in a holiday shortened week as shortcovering prompted by the expectations of better earnings which we addressed in our overview. This is a bear market rally and we do not feel it will carry much further. Then we expect the reality of economic stress to take over and push prices much lower. Implement hedging strategies.
Currencies: The June U.S. dollar index closed at .86075, up 0.0365 against losses in the Euro of 87 points to 1.3143, the Swiss Franc 66 points to 8649, the British Pound 53 points to 1.4632, and the June Japanese yen 75 points to .9964. Gains were posted in the Canadian dollar and the Australian dollar. Many of the currencies we follow were offsetting prior directional moves in front of the long holiday weekend. We would look once again at the long side of the Swiss Franc.
Energies: May crude oil closed at $52.24 per barrel, up $2.86 as speculators bought according to data in the CFTC’s weekly Commitments of Traders report released Friday. Hedge funds were notable buyers of crude. We like the long side of crude for a move to the $60 per barrel level as we stated in recent commentaries and with current problems with piracy on the open seas which has not been properly addressed in my opinion, by the Western world, we could see further concerns over shipping. Stay with the crude oil but only with well capitalized accounts.
Copper: July copper closed at $2.0845 per pound, up 7.25c following the U.S. equity market where investors feel we have seen the bottom. Of course I disagree and am awaiting the next “shoe to fall” in both equities and demand for copper. Inventories at the LME dropped by 7,425 metric tonnes on Thursday to 496,775. The Comex inventory data showed an increase of 128 short tons to 47,245 tons, and we did not see the weekly Shanghai data report due to the holiday. Hold put positions but as I advised last week, this is not the time to add.
Precious Metals: June gold closed at $883.30, down $2.60 as the demand switched to equities leaving gold at recent lows. The dollar strength also a main factor in the weakness in precious metals. We prefer the sidelines. July silver closed at $12.358, down 90¢ following gold and has no fundamental basis for price movement on its own. July platinum closed at $1,195.30 per ounce up $7.90 due to the strength in equities that was based on a supposed economic turn which would help the auto industry which is a heavy user of platinum in catalytic converters. We see no change in demand for autos and would avoid platinum. June palladium closed at $231.10, down $4.60 as platinum/palladium spreads unwound. We had suggested taking profits in the recommended long palladium, short platinum spreads.
Grains and Oilseeds: July corn closed at $3.99-6, down 7¢ mostly tied to technicals and sympathy with the decline in wheat prices. We prefer the sidelines. July wheat closed at $5.33 ½ per bushel, down 10 1/4c on profit taking and against the failure to find support tied to the friendly USDA supply/demand report. Ample current supplies also a factor in the selling. Stay out. July soybeans closed at $10.02 per bushel, up a half cent on profit taking after the early week gains. The USDA soybean ending stocks at 165 million bushels, the lowest since the 2003-04 marketing year. The USDA estimate was 20 million bushels lower that the March estimate and should add further strength to beans. We had suggested the long side last week and continue to favour that posture, using stops.
Coffee, Cocoa and Sugar: July coffee closed at $1.2135 per pound, up 1.15c tied to overall buying in commodities but the strong dollar on Thursday may prompt long liquidation early in the week. However, with sources advising of scarcity of beans from Central America and Mexico, we would expect further short covering and new buying in coffee. We like the long side, but use those protective stops. July cocoa closed at $2,566 per tonne, up $3.00 mostly on speculative buying that took prices to the intra-day high of $2,620. Profit taking took prices back near the close. We prefer the sidelines until after the European cocoa grind later in the week. The various cocoa grinds show the level of overall demand for cocoa. July sugar closed at 13.31c per pound, up 36 points tied to the strength in crude since sugar is also affected by ethanol demand and pricing a factor between crude and sugar. We continue to view sugar as uninteresting.
Cotton: July cotton closed at 48.73c per pound, down 66 points on profit taking after cotton touched 8 weekly highs early Thursday. We prefer the sidelines since we were unable to properly monitor the recent activity from a floor broker’s standpoint.
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.
