The U.S. economic data continues to confuse the investing public with the sometimes negative, sometimes positive reports from Washington. This past week was no different with the Labor Department reporting that U.S. consumer prices declined the most in 54 years. Consumer confidence according to the University of Michigan and Reuters rose in the early part of May also creating confusion since Michigan is the home of the auto companies which are being thrown into bankruptcy and laying off thousands of workers. I don’t assume those workers were part of the University of Michigan survey. Manufacturing activity in the New York region was reportedly “improved” in May with Industrial production for April weaker than expected. That data was not as bad as in prior months and gave some credence to expectations of a bottoming of the U.S. recession. Once again we have to disagree with those using “rose-colored glasses.” Now for some actual information with my usual analysis and comments.
Interest Rates: June treasury bonds closed at 12229.5, down 6 ticks as the U.S. economic data seemed to provide confidence in a bottoming of the U.S. recession. Investors usually move money back and forth between the relative safety of U.S. treasuries and the equity markets. However, with the burgeoning U.S. budget deficit looming there are times when both treasuries and equities suffer price declines. We prefer the sidelines in treasuries but barring any new Treasury Department offerings, I expect lower prices and consequently higher long term yields, something that could stifle any expectation of an improved housing market.
Stock Indices: The Dow Jones Industrials closed Friday at 8268.64, down 62.68 and the lowest close in two weeks. The S&P 500 closing at 882.88, down 10.19 and the Nasdaq closing at 1680.14 down 9.07. For the week the Dow lost 3.57%, the S&P 500 lost 4.99, and the Nasdaq lost 3.38%. Much of the corporate earnings reports were on the positive side but with the number of unemployed growing by over 600,000 each week and the auto companies planning further huge layoffs and dealer cancellations, we see nothing positive to change our overall opinion that the global economies are still in recession with no real sign of improvement or change. Implement hedging strategies now…..We don’t need the Hubbell telescope to notice the “black hole” under the equity markets.
Currencies: The June U.S. dollar index closed at 8315, up 78 points against losses in the Euro of 179 points to 13471, the Swissie 160 points to 8906, the British Pound 71 points to 15159, and the June Canadian dollar 71 points to 8479. The Aussie dollar lost 123 points to 7470. The only improvement against the dollar was the June Yen which gained 70 points to close at 10522. Japanese machinery order data prompted the gains in the yen to two month highs against the dollar. We prefer the sidelines and stops were touched off in the Swiss Franc long position we recommended. Expectation of a bottom to the U.S. recession prompted new buying of dollars this past week. We do not expect that euphoria to continue. We would now look to get back on the long side of the Swissie but with stops.
Energies: June crude oil lost $2.28 on Friday to close at $56.34 per barrel at the New York Mercantile Exchange. For the week crude lost 3.9% after gaining 10% the previous week. U.S. crude oil inventories were at the highest level in over 18 years. We continue to suggest the sidelines after our goal of $60 per barrel was achieved.
Copper: Inventories at the LME were down 12,850 metric tons on Friday to 357,800 with Comex inventories up 279 tons to 49,511. The weekly data from the Shanghai Futures Exchange rose 7,699 tons to 35,389. The inventory numbers were response for the decline in copper prices at the NY merc to 20175, down 95 points. We continue to suggest holding put positions.
Precious Metals: June gold closed at $931.30 per ounce, up $2.90 with July silver losing 3c to close at $14.01. July platinum closed at 1111.10, up 2.10 while June palladium gained 1.10 to 226.95. As I mentioned in prior commentaries the dollar/gold relationship occasionally departs from the norm which is dollar up, gold down and vice-versa. The disparity was caused by inventory declines at the Comex where gold inventories were down 36,707 ounces to 8,457,519. Silver inventory showed an increase of 624,219 ounces to 118,840,442. We continue to suggest charting the dollar and U.S. interest rates rather than concentrate on gold price charts.
Grains and Oilseeds: July corn closed at $4.17 ¼ per bushel, down 11c tied to technicals showing an overbought condition for corn. Weather was also a factor with rain forecast but offset by strong weekly export sales and bullish 2009-10 ending stocks. We prefer the sidelines. July wheat closed at $5.75 ½, down 2c as traders declined to hold positions over the weekend. Slow export demand also a fact in Fridays trading. We prefer the sidelines here as well. July soybeans closed at $11.30 ½ per bushel, down 17c on profittaking after recent strength and a lack of fresh news. Trailing stops we suggested should have taken longs off and we now suggest the sidelines pending further liquidation. When the market completed its corrective cycle we would look to Argentina and Brazil as well as the U.S. fundamentals for further indications of possible direction. Our bias remains on the long side however.
Coffee, Cocoa and Sugar: July coffee closed at $1.2780 per pound, down 20 points tied to the strong dollar and weak equities. We still like the long side of coffee and would add on any further declines. July cocoa closed at $2,338 per tonne, up $28 in light trading in front of the weekend. Buying was considered most technical. We prefer the sidelines with the International Cocoa Organization expected to report that the 2008-09 grindings will fall 6% due to the economic recession. We prefer the sidelines in cocoa. July sugar closed at 14.95c per pound and is now on our “no interest” list. With Indian production expected to rebound after declines due to weather and that could put pressure on prices. Stay out.
Cotton: July cotton closed at 56.30c per pound, down 276 points on technical selling and long liquidation which ran into stop loss selling by funds. Technically cotton is considered overbought after recent gains and we could see renewed buying thanks to the USDA report on 2009-10 crop data. We would wait for the correction to complete and on the turn look to get back on the long side.
