The Acuvest Letter
Market Commentary Week ending February 12 2010
Overview and Opinion:
China’s surprise monetary policy tightening means that as the "lender" to the United States, those funds will dry up and the expansive spending program by the U.S. President will drain reserves and push the budget deficit closer to the GDP. In retaliation to President Obama’s sale of military equipment to Taiwan, China has threatened to sell some of their huge U.S. Treasury position. That would disrupt the U.S. financial markets. The credit problem in Greece where the debt has become overwhelming and created protests and strikes in that country could exacerbate the situation. The spillover to other Euro countries prompted statements of bailout by those countries and threatened the structure of the Euro currency. The more serious of the two could turn out to be China’s monetary tightening but it remains to see how the situation develops. In the meantime investors should make whatever adjustments they deem appropriate. Now for some actual information.
Interest Rates: March Treasury bonds closed at 117-18, up 10 ticks but down from last weeks 119-16 and remains in the previously discussed price range. The late week gain was tied to China tightening credit lending and the sovereign debt problems in Greece and reportedly lower GDP data from euro-zone countries. The recently reported debt default possibility for Dubai was also factored into global concerns. We once again suggest Treasuries will remain in a price range and should only be traded to professionals.
Stock Indices: The Dow Jones industrials closed at 10,099.14, down 45.05 points with the S&P 500 losing 2.96 points to 1,075.51. The Nasdaq managed a gain of 6.12 points to close at 2,183.53. Concern over China’s decision to curb bank lending and poor European economic data raised the specter that the "supposed" Global recovery might be stalled. Our opinion has been that there is no global economic recovery. We once again suggest implementing hedging strategies.
Currencies: March U.S. dollar index continued is climb against most currencies closing at 8041, up 31 points. The March Euro lost another 70 points to close at 1.3617 after trading as low as 1.3531. The March Swiss Franc lost 54 points to close at 9290. Other currency losses include the March British pound closing at 1.5663, down 29, the March Japanese yen losing 25 points to 11119, the March Canadian dollar losing 10 points to 9516, and the Australian dollar losing 30 points to 8859. The ability for the European leaders to provide support to Greece while their own economic situation remains in doubt prompted the flight to the U.S. currency. We could see further problems developing in the euro zone countries and would avoid taking any positions with the exception of adding to the long Swiss Franc in moderation of course. Otherwise stay out until the global situation is clarified.
Energies: The March crude oil contract lost $1.15 per barrel closing at $74.13. The increase in U.S. crude inventories and concern over the surprise move by China to lift bank reserve requirements slowing commodity demand by the world’s second largest fuel consumer prompted the selling. We prefer the sidelines but could see further pressure on crude prices this coming holiday shortened week.
Copper: March copper closed at $3.0825, down 5.1¢ per pound tied to the decision by China to tighten lending. The strong dollar also a factor. We prefer the short side of copper but would not add to short positions until copper prices decline and hold below $3.00 on a close basis.
Precious Metals: April gold closed at $1,090 per ounce, down $4.70 but the "gold bugs" are still promoting gold in the media hosted by celebrities who claim to own it. Of course they are paid in dollars not gold to perform their "acting" role. We have suggested time and time again "throwing away" your gold carts and chart the U.S. dollar in which it is denominated with a close eye on global interest rates. March silver closed at $15.447 per ounce, down 14.3¢. April platinum closed at $1,511.10, down $8.2 with March palladium losing 8c to close at $418.15 per ounce. Our suggestion of short platinum/long palladium is working nicely for our readers. If "forced" to make a decision between gold and silver, my choice for the long side would be silver. Any decline in the U.S. currency could make silver a strong buy in our opinion.
Grains and Oilseeds: March corn closed at $3.615 per bushel tied to profit taking after recent gains and in conjunction with selling in other markets. Funds were prominent sellers as well. We prefer the sidelines.
March wheat closed at $4.865 per bushel, down 7¢ tied to the strength in the dollar and weak fundamentals. We prefer the sidelines. March soybeans closed at $9.45 per bushel, up 2¢ on speculative fund buying and remains in a consolidation mode. We prefer the long side of soybeans but would hold off adding to long positions until the South American supply situation is clarified. On Tuesday the National Oilseed Processors Association will report on the January soybean crush which will determine demand for soy products and subsequently for soybeans.
Coffee, Cocoa and Sugar: March coffee closed at $1.3275, up 55 points with the May contract gaining 65 points to close at $1.3430 per pound and up 2.6% for the week. Confusion over the euro-zone economic situation tied to the credit problems in Greece and the proposal to support Greece led to dollar strength and early selling in coffee. The later backing off of the dollar prompted position squaring in front of the weekend and short covering. ICE coffee warehouses reported a decline of 11,862 60 kilo bags on Friday and that prompted some of the short covering. We like the long side of coffee but only on dips. March cocoa closed at $3,093 per metric tonne, up $4.00 in a range of $3,124, to $3,019 on dollar gyrations and economic concerns in front of the holiday weekend in the U.S. We prefer the sidelines in cocoa until the Ivory Coast cocoa supply situation is clarified. March sugar closed at 26.95c per pound, down 58 points. Global economic concerns as well as the dollar strength prompted the speculator and fund selling. We prefer the sidelines.
Cotton: March cotton closed at 74.39¢ per pound, up 1.47¢ on supply concerns as well as strengthening global demand. We like cotton from here but would use stop protection.
John L. Caiazzo
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.