The Acuvest Letter: Market Commentary Week ending June 19 2009
Interest Rates: September Treasury bonds closed at 114-27.5, up 22 points after recent heavy long liquidation tied to the burgeoning U.S. debt which will probably be met by the government selling treasuries to raise money. We had recommended purchase of Treasury bonds since the lower bond prices led to higher interest rates on mortgages, a situation that is untenable with the continuing foreclosures and home inventories. We had reported that the “tug of war” between the need of the government to raise cash by selling Treasuries, and the need for lower rates. We feel the lower rate scenario will win and suggest buying bonds on further declines but with stop protection.
Stock Indices: The Dow Jones industrials closed at 8539.73, down 15.87 points and lost 3% for the week after four weeks of gains. The S&P 500 closed at 921.23, up 2.86, but lost 2.6% for the week. The Nasdaq closed at 1827.47, up 19.75, but lost 1.7% for the week. Last week and for some time I have been admonishing investors to implement hedging strategies. Over 40 banks have failed across the U.S. My opinion has not changed. Until there is a marked improvement in the financial sector or the labor situation, I see no end to the U.S. and/or global recession.
Currencies: The September U.S. dollar index closed at 8063, down 38 points against gains in the September Euro of 56 points to 13948, the Swissie 53 points to 9272, the British pound 165 points to 16513, the Japanese yen 43 points to 10402, and the Aussie dollar 56 points to 8010. The September Canadian dollar followed the U.S. on Friday losing 11 points to 8819. Early week gains in the dollar prompted by the sale of treasuries pushing rates higher which attracts dollar investment faded on Friday. The lower rates we expect due to the continuing recession should further impact the dollar. We continue to favor the long side of Swiss Francs.
Energies: August credit oil closed at $70.02 per barrel, as selling in the gasoline market dragged crude oil lower. Expectations that adequate fuel supplies in the U.S. should meet demand during the heavy summer usage by vacationers. We continue to prefer the sidelines but should the U.S. economy show signs of improvement, demand could increase easily absorbing any excess supplies in either gasoline or crude.
Copper: September copper closed at $2.2615 per pound, down 2.05¢ after early trading indicated a two-cent higher opening based on London. We continue to feel the ongoing global recession will further prompt lower demand for copper from the housing and auto industries. Inventories at the Comex were up 360 short tons to 60,138 and the LME reported a decline of 1,250 metric tons on Friday to 280,350. The weekly data from the Shanghai Futures Exchange showed an increase of 7,889 metric tons and reflects demand from the Far East, an indication of demand from the major user, China. Hold put positions and roll over if necessary but do not add at the current time.
Precious Metals: August gold closed at $936.20, up $1.60 tied to the weak dollar with September silver losing 3.9¢ per ounce to $14.234. July platinum closed at $1,211.20, up $3.60 with September palladium gaining 6.45¢ to $246.15. Demand for the white metal improved thanks to positive expectations for the U.S. auto industry, specifically from Ford Motors. Gold inventories at the Comex warehouses were unchanged at 8,737,566 ounces. We continue to suggest watching the U.S. interest rates and the dollar for indications of price direction for precious metals. These are trading markets until a dollar trend is established tied to U.S. financials.
Grains and Oilseeds: July corn closed at $3.99 ¼ per bushel, down 4c on carryover selling from the soybean pit. Fund selling was also a factor in front of the USDA acreage report coming Friday. We suggest the sidelines until after the report. September wheat lost 4.75¢ to $5.845, and lost 28.75¢ for the week. The current U.S. winter wheat harvest and the large global wheat ending stocks were a factor in the long liquidation. We prefer the sidelines here as well. November soybeans closed at $10.06 per bushel, down 37.5¢ on heavy fund selling in beans, meal and soy oil. A private estimate of acreage of a 3 million acre increase from the March forecast prompted the long liquidation and new selling. Our suggested long position in our recent commentary would have been stopped out and we are now on the sidelines pending further real information from the USDA. Private estimates by the analytical firm Informa Economics Friday indicated u.S. soybean acreage for 2009 will total 78,869 million acres, up from the 76 million acres USDA March estimate and against last years 75.7 million acres. I would look to buy beans on Thursday near the close but very light on my expectation that the USDA report will not be as bearish as expected. That suggestion is limited to well capitalized accounts. Others should await the report and prepare for trading on Monday following weekend analysis of the report and to review the coming weeks activity. We continue to like soybeans but would not fight the trend. Another factor to consider is that any strength in the dollar would push importers to South America.
Coffee, Cocoa and Sugar: September coffee closed at $1.197 per pound, down 3.15¢ on speculative selling tied to harvest pressure. We have been suggesting the sidelines in coffee and this past week saw prices plunge 11.95c or 9%. The seasonal expectation for slower demand for coffee by consumers during the summer months and lower purchases by roasters and a lack of frost damage this season could impact prices further. We continue to suggest the sidelines in coffee. September cocoa closed at $2,520 per ton, down $36. Technicals could push prices lower with the only unknown being the U.S. dollar. We like the sidelines here as well. October sugar closed at 16.07¢ per pound, up 23 points tied to India’s cap on the quantity of sugar individual firms are permitted to hold. Once again, we have no interest.
Cotton: December cotton closed at 56.38¢ per pound, down 2.76¢ on heavy fund selling tied to liquidation across the board of agricultural commodities. Cotton has been following the dollar as well as price action in crude oil. We favor the sidelines.
John L. Caiazzo
Tel: (951) 693-9600 Fax: (951) 693-3170
Website: www.acuvest.com E-mail: futures@acuvest.com
We will continue to comment on agricultural commodities even though our current attention is toward financials. Anyone interested in specific comment or information on ags should contact me directly.
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.
