Overview and Opinion: The “real” news doesn’t seem to justify the euphoria emanating from Washington. Total bank failures so far this year rose to 64 with bank failures in Puerto Rico and Michigan, Washington and Missouri. The drain on the Federal Deposit Insurance fund was $7.4 billion and the idea of an economic recovery seems to be wishful thinking.
We would suggest that our “warnings” over the past three years warrant repeating. The U.S. economy remains mired in recession regardless of the dictionary description. The “creation” of 360,000 jobs in the first quarter is no match for the 450,000 or so first time unemployed each week. The numbers speak for themselves. Once again, “an unemployed consumer does not consume, and the producers of those non-consumed products will soon show up on the unemployment line.” We will not change our opinion until those number decline, but even so, it would only mean, as we have stated before, that “there are fewer people to lay off without shutting company doors."
Now for some actual information.
Interest Rates: June treasury bonds closed at 11902, up 27 points as money moved from equities to the relative safety of treasuries. This phenomenon has been taking place on a regular basis even as the Federal Reserve indicated no change in rates which is the usual reason for movement in treasury yields and prices. We once again suggest treasuries remain in a trading range albeit now headed to the upper range of our estimated range. The Greek debt and the potential impact on other of the Eurozone members is playing havoc internationally as talks of a bailout and possible exclusion from the Euro abound. Other countries such as Portugal, Spain, Italy, Ireland and others feel the brunt of the problem. We had stated in recent commentaries that we never believed that combining countries with varied economies into one currency was a good idea. We expect additional problems to emerge.
Stock Indices: The Dow Jones industrials lost 158.71 points on Friday to close at 11,008.61 after finding some support right at 11,000. The S&P 500 closed at 1,186.69, down 20.08 while the Nasdaq lost 50.73 points to close at 2,461.19. For the week the Dow lost 1.8%, the S&P 500 2.5%, and the Nasdaq 2.7%. While corporate earnings news were mixed to better than expected, the impact of the fraud investigation into the operations of Goldman Sachs is having a negative impact on the investment community. Some weak technology company earnings also provided impetus to the heavy selling Friday. We once again strongly suggest implementing hedging strategies.
Currencies: June dollar index closed at 8199.10, down 17 points on long liquidation in front of the weekend after recent gains. The situation with Greece and now other of the Euro zone countries remains in flux with potential damage to the entire Euro concept. We have suggested some time ago that the idea of a single currency for countries with varied economies was confusing and I could not understand how it could possibly work. Turmoil within one or more of those countries something like Greece is impacting others. Fridays rally was a correction based on expectations of a bailout. However, the number $159 Billion was bandied about and I am not sure it can be developed. Many of the Euro Zone countries are suffering through a recession as well as the U.S. We continue to prefer the sidelines but favor the Swiss Franc on setbacks.
Energies: July crude oil closed at $88.36 per barrel, up $1.11 tied to positive economic expectations and the weak dollar. Low U.S. interest rates precludes dollar investment and with no change coming from the Federal reserve, we see no reason for dollar advances other than the usual flight to safety which we witnessed over the past few sessions. Crude managed a weekly gain of 1.2% and for the month of April, gained 2.8%. We prefer the sidelines but believe due to ample supplies and our expectation for stagnant demand, we will see lower prices for energy products.
Copper: July copper closed at $3.3535, up 30 points on shortcovering after recent heavy long liquidation. The moderate gain in the U.S. GDP prompted speculation of an economic recovery which would improve demand for new homes and autos. We, of course, disagree and continue to believe copper demand as well as prices will decline. The report of the U.S. GDP increase of 3.2% annual rate for the first quarter translated to demand for copper in construction and manufacturing. We remain bearish.
Precious Metals: June gold closed at $1,180.70 per ounce, up $11.90 tied to the weak dollar Friday but mostly as a hedge against the European debt concerns. Technicals and momentum considerations also played a part in the buying. June gold traded as high as $1,182.50 which was the highest since early December. July silver closed at $18.639, up 6c tied to gold. July platinum gained $11.40 to close at $1,745.10 per ounce with June palladium gaining $6.75 to close at $555.75 per ounce. The platinum gain of only .66% compared with the 1.23% gain in palladium indicates my previously recommended spread of short platinum, long palladium is still working but I suggested last week taking some profits off the table. We prefer the sidelines since no one can predict the outcome of the European problem and my crystal ball is in the “shop” being repaired (tic).
Grains and Oilseeds: July corn closed at $3.75 ¼ per bushel, up 6 1/4c tied to expectations of additional Chinese demand. The weak dollar makes U.S. grain more appealing. We prefer the sidelines. July wheat closed up 7 1/2c per bushel on technical buying and in conjunction with buying in other markets. We prefer the sidelines here as well. July soybeans closed at $9.99 per bushel, up 3c while November beans gained 5 1/4c to close at $9.75 ¾. The buying was tied to strength in other markets and the weak dollar. A lack of fresh news keeps us from adding to the current longs we recommended recently.
Coffee, Cocoa and Sugar: July coffee closed at $1.3530 per pound, up 70 points tied to strength in other agricultural commodities and weak dollar. Technicals also a prominent factor in the buying as well as buying by roasters. With expectations of a Brazilian bumper crop, we prefer the sidelines. July cocoa closed at $3,239 per tonne, up $28 on technicals and momentum indicators. The selling that took prices of their almost $3,500 prices was tied to expectations that the global supply of cocoa would not meet demand and a correction was to be expected. We look for prices to once again attempt a new rally based on Ivory Coast export declines of 14% from the start of the current 2009-10 season. The two week exports were down 29% from a year ago and could prompt new buying. We like cocoa from here but would use stops on any new buying. July sugar closed at 15.15c per pound, down 14 points and remains on our no interest list. A “peek” at the charts will explain our reluctance to make any recommendation for sugar.
Cotton: July cotton closed at 84.13c per pound, up 83 points tied to textile mills buying and tight supplies. Shortcovering also a factor and we expect further price gains this coming week. Some light buying on Monday morning using stops for a trade is our recommendation for cotton. However, do not “marry” the position. Take profits when available.
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.