Market Commentary Week ending September 25 2009
Overview and Opinion: All eyes were on the G20 conference and on speeches by President Obama, Libyan President Omar Qaddafi, but mostly the surprise announcement by Iranian President Ahmadinejad that a second nuclear facility has been established. Like a spoiled child antagonizing a parent, he plans to test fire a short range, medium range, and long range missile this coming week in direct defiance of the UN. It remains to be seen how China, Russia, and the U.S. deal with this matter. Iran has denounced the holocaust as never happened and has said it would “wipe Israel off the face of the earth”. The ability for Israel to refrain from attacking Iran is in question and what it would mean to the global economies since Iran, if attacked, said it would shut down the Hormuz Strait where much of the crude from that area passes through. Obviously the suggested sanctions have no effect on Iran and in could very well be that the new missile test firings could be the “straw that broke the camel’s back” as far as Israel is concerned. The other important news relates to the estimate by the General in Afghanistan reporting that without additional troops on the ground, the war could be lost. Now for some actual information relating to markets even though the above certainly would have an effect.
Interest Rates: December Treasury bonds closed at 120-28, up 29 ticks as money once again “made the trip” from equities to the relative safety of treasuries. Reports this past week were dismal in the face of various statements by Fed Chairman Bernanke that the recession is over (The man is dreaming with his eyes open, in my opinion). Durable goods orders fell sharply in August with lower demand for aircraft causing the biggest drop in seven months. Orders dropped by 2.4% according to the Commerce Department. The drop was the biggest since January when a decline of 7.8% was reported. The Institute for Supply Management reported on the first of September that its index was 52.9 in August, up from 48.9 in July and 44.8 for June. Numbers over 50 indicate growth and led to the belief that the manufacturing recession was over. The July durable goods orders were revised down to an increase of 4.8% after initially estimated at a 5.1% increase. The eight month durable orders year to date were down 24.9% in unadjusted terms from the like 2008 period. Unfilled orders for durables feel 0.4% for the 11th drop in a row. This week we will be getting the monthly U.S. government jobs data on Friday. The U.S. unemployment rate of 9.7% translates to fewer Americans able to purchase non essentials and that bodes ill for any suggestion that the recession is over. We look for treasury bonds to remain in a range but any selling would, in our opinion, represent a buying opportunity.
Stock Indexes: The Dow Jones Industrials closed at 9665.19, down 42.25 and lost 1.6% for the week. The S&P 500 closed at 1044.38, down 6.40 and lost 2.2% for the week. The Nasdaq closed at 2090.92, down 16.69, and lost 2% for the week. The Commerce Department report on durable goods along with concern over unemployment prompted long liquidation in some equities that has been considered overbought over the past few weeks. Once again, earnings gains based on cost cuts rather than actual sales and growth, create a false environment for investors and we continue to suggest implementing hedge strategies to avoid a “financial meltdown” in equities.
Currencies: The December U.S. dollar index closed at 7696 down 15.5 points with the biggest loss against the December yen which gained 170 points Friday to close at 1.1129. The December Swiss Franc gained 4 ticks to close at 9717. The December Euro gained 11 points to close at 1.4664. The December British pound lost 123 points to close at 15937. Trading on Friday was choppy with much of the trading tied to end of week position squaring. The equity market weakness also a factor. We continue to favour the long side of Swiss Francs.
Energies: November crude closed at $66.02 per barrel, up 13¢ on concerns that the Iranian nuclear program that came as a surprise when a second facility was announced could bring additional sanctions that may cause Iran to try to delay deliveries from the area. We prefer the sidelines.
Copper: December copper closed at $2.7405, up 3.10 on short covering after recent weakness and in front of the weekend. Thursday’s selling considered overdone and shorts covered. Inventories also played a part with a sharp decline in the weekly Shanghai futures Exchange. An indication of renewed buying from the Far East. The LME warehouses reported a decline of 175 metric tons Friday while the most recent Comex data showed a gain of 46 short tons to 53,750. We continue to feel copper prices will decline further on the basis of our expectations of a continued decline in demand from housing and auto industries.
Precious Metals: December gold closed at $991.60 per ounce, down $7.30 on technicals after recent gains. We prefer the sidelines. December silver lost 23.5¢ per ounce to close at $16.06. October platinum lost $239 per ounce to close at $1284.60 while December palladium lost $3.00 to close at $294.90. As equities decline there is usually a transfer of funds to either the Treasuries or precious metals or both, depending on the severity of the decline. We look for metals to reflect the activity in other markets.
Grains and Oilseeds: December corn closed at $3.34 per bushel, down 2.5¢ mostly on profit taking in front of the weekend. Outlook for large production could keep prices in check so we prefer the sidelines. December wheat closed at $4.49 ¾ per bushel, down 23.25¢ after sharp gains during the week but without fresh fundamental news, we prefer the sidelines. November soybeans closed at $9.26 per bushel, up 6.5¢ on short covering in front of the weekend. Some underlying support for beans after recent losses could present a new buying opportunity. Weather could be a factor in the weeks to come. We like the long side for a trade but with stops.
Coffee, Cocoa and Sugar: December coffee closed at $1.2770 per pound, down 1.6¢ on long liquidation and fund selling. Weak technicals factored in the selling. However, some industry reports show the 2008-09 harvest coming in over a month behind and that could present a buying opportunity for a trade on any further selling. December cocoa closed at $3,083 per ton, up $17 on Friday but for the week lost $29. While some supplies are considered tight, recent gains could present resistance. We prefer the sidelines. March sugar closed at 23.17c per pound, up 25 points tied mostly to the weak U.S. dollar and technicals. Weather in Brazil has been dry but beneficial rains are expected early in the week. We prefer the sidelines.
Cotton: December cotton closed at 61.94¢ per pound, down 2.87¢ on heavy selling tied to technicals after trading at a six-week high. Funds were noted sellers. Stay out for now but look for another rally in the near term. Traders could put on a few contracts on Monday assuming no heavy carryover selling emerges. Our overall view from current levels is bullish.
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.
