Overview and Opinion: An important disparity exists between the number of jobs created and the number of first time unemployed. The Labor Department on Friday reported that 162,00 nonfarm payrolls were created in March, the biggest gain since the year earlier and that the unemployment rate remained at 9.7%. That’s all well and good, but with jobs created at the average monthly rate of 54,000 for the first three months of 2010, there is a shortfall monthly of nearly two million if you count the weekly first time unemployed of over 400,000. Analyst expectation for jobs created was for 200,000 so the 162,000 figure was short of expectations. As I stated in earlier commentaries, there may be improvements in the first time unemployed figure since there are fewer employees to lay off with “shutting the doors” of some companies. Also, the increase included 48,000 jobs created for the Census and that also “corrupts” the “glowing” employment data. Another factor is that companies are requiring existing employees to do more work to make up for the dismissed workers. That, unfortunately, increases productivity, but for how long? We once again suggest that the newly passed “health care” bill will increase taxes, add to the budget deficit, and prolong the agony of the longest recession since the great depression. Take off your “rose colored glasses” and “smell the coffee.” Now for some actual information.
Interest Rates: June Treasury Bonds closed at 11428, down 101 tied to expectations that the jobs data “proves” the economy is recovering albeit at a slow pace. We of course disagree, primarily due to the labor situation in the U.S. Bonds are at the low end of our projected trading range and the negativity from analysts keeps us from recommending taking long positions. We do suggest buying calls on September Treasury bonds.
Stock Indices: The Dow Jones industrials closed at 10,927.07, up 70.44 thanks to the jobs data showing a gain in non farm payrolls. The S&P 500 closed at 1,178.10, up 8.67 with the Nasdaq gaining 4.62 to 2,402.58. For the week the Dow gained 0.7%, the S&P 500 1%, and the Nasdaq 0.3%. Rallies on Thursday in front of the Easter holiday weekend with the market closed Friday prompted shortcovering. We continue to suggest the economy is not in recovery and suggest implementing hedging strategies. The newly passed health care bill will no doubt be costly and makes no sense to me since the provision for “affordable health care” for those who are having difficulty making mortgage and car payments with the “penalty” for not buying insurance is not appreciated by the general public. The growing “unrest” vis-à-vis tea parties could spell “disaster” for Democrats in November. We try to remain neutral politically but it is proving more and more difficult. The current administration, in our opinion, has no clue as to the ramifications of government take-over of yet another segment of the U.S. economy. The “honeymoon” between Wall Street and President Obama…..is over. It appears to me to be a clearcut case of “biting the hand that feeds you” after the support Wall Street and the banks gave him.
Currencies: The June U.S. dollar index closed at 8144.4, up 15.3 points tied to the Labor Department report showing the U.S. economy added the most jobs in three years. June euro closed at 13486, down 84 points with the Swiss franc losing 78 points to 9404, the British pound 77 points to 15187, the Japanese yen 96 points to 10566 and the Canadian dollar 16 points to 9896. We continue to favor the long side of Swiss francs but would avoid adding to longs until we see some pressure on U.S. rates which will translate to pressure on the dollar.
Energies: May crude oil closed at $84.87, per barrel, up $1.11 tied to reports of a smaller than expected increase in storage levels and favorable U.S. jobs data indicated a U.S. economic recovery and an expected increase in demand. Positive economic reports from Europe and Asia also a factor in the energy strength. Natural gas, our recent buy recommendation, gained 22c to $4.086 per MBTU after having lost 31% during the first quarter of the year. We continue to favor the long side of Natural Gas but would avoid new positions in crude oil.
Copper: May copper closed at $3.5745 per pound, up 2.1c tied to gains in global manufacturing and the U.S. jobs data. We have been wrong in copper for some time but our continued expectation for a “double dip” recession keeps us from “jumping on the bandwagon” with the longs. We continue to look for sharp declines in equities and copper prices but would not add to put positions at this time.
Precious Metals: June gold closed at $1,126.10 per ounce, up $11.60 even as the dollar managed a gain on Thursday. Commodity managed money funds were buyers on Thursday after recent declines and an expected global economic recovery could lead to inflation pressures. May silver closed at $17.89 per ounce, up 36.4c following gold but silver gained 2.1% against the 1% gain in gold. We have preferred silver for some time basis the potential downside risk. July platinum closed at $1,675.60 per ounce, up $28.70 or 1.7% against June palladium which gained 2.4% or $11.40 to close at $491.35. Our recommended spread of short platinum, long palladium continues to work favorably for our readers. We are opposed to any other positions in precious metals but prefer silver on setbacks.
Grains and Oilseeds: May corn closed at $3.44 ½, down 11 3/4c tied to bearish USDA numbers and weather. Stay out. May wheat closed at $4.54 ¾ per bushel, up 4 1/4c on a corrective bounce after recent weakness. We prefer the sidelines here as well. May soybeans closed at $9.43 per bushel, up one penny also on a correction after recent selling. While soybeans are still our favorite in the group, we would avoid positions for now. The Argentina port strike has been resolved and provided some of the selling pressure. On any further selling we would consider small long positions.
Coffee, Cocoa and Sugar: May coffee closed at $1.3740 per pound, up 1.25c on speculative fund buying after the recent selling. The recent dollar weakness and the expected tightness of supplies for the preferred Arabica beans could prompt additional strength early in the new week. We would look to get long on any dips. May cocoa closed at $2,990 per tonne, up $21 on fund buying and a weak U.S. dollar against the British pound and U.S. equity strength. We continue to favor the sidelines in cocoa. May sugar closed at 16.7c per pound, up 0.11c in a hectic trading session with the low posted early in the session at 15.46c before short covering returned prices to closing levels. We prefer the sidelines in sugar.
Cotton: May cotton closed at 81.50c per pound, up 0.95c mostly tied to trading in other markets and equities. We prefer the sidelines in cotton. We have been concentrating on financials and cannot provide an equitable recommendation for softs this shortened holiday week.
John L. Caiazzo
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.
