The markets continue to react to changes in sentiment pertaining to the on again off again Chrysler merger and the “government interference” in corporate affairs. The government maintains that since they are providing funds for bailing out the companies they should have something to say about how and what they produce. Corporate executives are concerned that “inexperience” in their business, specifically the auto industry, would not improve the situation. I maintain that with the high level of unemployment there are “no buyers” for their automobiles and “throwing money” at the problem will not produce the desired results. It remains to see who wins this argument. I bet on me……Now for some actual information.
Interest Rates: June treasury bonds continued their downward slide losing another 107 points on Friday to close at 11421.5. Two year note yields climbed to an eight month high on concern the Federal Reserve may begin to raise rates after the jobs report showing few jobs lost in May that estimated. The U.S. labor department reported that non farm payrolls were down only 345,000 for May, less that the economist forecasts of a 525,000 jobs loss. It was the smallest job loss since September of 2008. We continue to prefer the sidelines but as I suggested in prior commentaries, the government will need to raise money by selling treasury paper and to entice buyers to purchase, the rates would have be higher pushing prices lower. The problem of course will be the delay in buyers looking for homes if rates are high. That would exacerbate the housing and auto industry recovery, which I personally do see occurring any time soon anyway. Stay out for now.
Stock Indices: The Dow Jones industrials closed at 8763.13, up 12.89, with the S&P 500 losing 2.37 points to close at 940.0 and the Nasdaq losing 0.6 points to 1849.42. For the week the Dow gained 3.09%, the S&P gained 2.28%, and the Nasdaq gained 4.23%. Expectations that the U.S. economy would turn around based on reduced downward momentum prompted another round of equity buying against losses in treasuries and precious metals. We disagree that there is any end to the current recession and would once again recommend implementing hedging strategies to protect equity portfolios.
Currencies: The June U.S. dollar index closed at 8068, up 123 points on Friday on a correction after recent heavy selling. The gain in the dollar was based on the gains in yields after a less that expected loss in U.S. jobs Friday. High interest rates imply attraction to the dollar. That “reversal” however is only a correction in an overall bear market for dollars. With the implication of continued labor strife, we see a return to dollar selling and would now step in again on the long side of Swiss Francs, our favorite currency. The Euro lost 217 points to close at 13961, 143 points lost in the Swiss Franc to 9207, 218 loss for the British Pound to 15975, 157 points lost in Japanese yen, and a 175 point loss for the Canadian dollar to 8942.
Energies: July crude oil closed at $68.44 per barrel, down 37c after trading as high as $70.32 during a choppy market session. The less than expected loss in jobs reported Friday prompted the rally but profittaking in front of the weekend pushed prices back at the close. We continue to prefer the sidelines.
Copper: July copper closed at $2.2840 per pound, down 1.7c after the U.S. jobs report prompted the dollar rally. Inventories played a small role in the trading with Comex data showing a gain of only 4 tons to 56,818. The LME warehouses stocks declined by 3,225 metric tons and the weekly report from the Shanghai futures exchange showed a gain of 15,263 metric tonnes to 45,480 tonnes. We once again suggest the sidelines but holding of put positions.
Precious Metals: June gold closed at $961.70 per ounce, down $19.50 with July silver losing 50.7c per ounce to $15.388. The heavy selling in precious metals was tied directly to the dollar strength after the Labor Department jobs report. July platinum lost $7.10 per ounce to $1,286.20 while September palladium gained $4.40 to $259.80 per ounce. We once again suggest discarding your gold charts and chart the dollar. Gold rallied over 9% recently tied to the weakness of the dollar and Fridays dollar action prompted the correction.
Grains and Oilseeds: July corn closed at $4.44 per bushel, down 4 1/2c tied to the dollar strength. Concerns over crops remains a bullish factor however, and that kept prices from declining further. We like the sidelines in corn but feel prices will rally once the dollar stabilizes or sells off again. July wheat closed at $6.23 per bushel, down 17 3/4c against the dollar strength. With the winter wheat harvest progressing, we would hold off any new purchases and stand aside for now. July soybeans closed at $12.25 ½ per bushel, down 4 1/2c and as with the others in the group, traded lower against the strength in the U.S. dollar. Planting delays in the eastern Midwest and potential for lower soybean yields could prompt shortcovering and new buying. We like the long side of beans from here.
Coffee, Cocoa and Sugar: July coffee closed at $1.3385 per pound, down 5.35c on profittaking and on the strong U.S. dollar. We would get out of longs and stand aside for now. Fundamentals turned bearish. July cocoa closed down one dollar per tonne to close Friday at $2,707. For the week July cocoa was up $119 per tonne and a correction was due. Trading was mixed but impressive since the other commodities were hard hit tied to the strong dollar so we could see renewed buying early in the week especially if the dollar stabilizes or weakens. A few longs might be in order but use stops. July sugar closed at 15.53c per pound, up 29 points but technically overbought so we would avoid positions in sugar.
Cotton: July cotton closed at 55.11c per pound, down 1.77c tied to weakness in other commodities and the strong dollar. We prefer the sidelines.
