Last weekend, the Group of 20 nations met in Toronto to try to determine a course of action to stem the current economic problems. The meeting two years ago was not as critical to global economic development as is the current situation, and I am sure expanded stimulus and austerity programs will be the topics of discussion. The current debt crisis will no doubt prompt the introduction of more stringent rules and we can only hope a positive tone emerges. Now for some actual information.
Interest Rates: September Treasury bonds closed at 12511, up 10 ticks over continuing concerns that the “economic recovery” touted by the U.S. administration has reached a stalemate. The Commerce Department reported on Friday that the U.S. GDP rose only at a 2.7% annual rate for the first quarter down from its original estimate of 3.2%. The weekend G20 summit is hopefully going to “iron out” rules for austerity and spending controls that could get the global economies back on track for recovery. Yields are at nearly the lowest in over 30 years and have failed to garner support for the housing industry after the tax credits for home buyers expired. Weak housing data and a revised downward economic assessment by the Federal Reserve also prompted the “flight to safety” of treasuries pushing yields lower. We continue to feel the current global economic condition will persist for some time and could keep interest rates at these current low levels. We regard the treasury market as continuing at the upper level of a trading range but any improvement in economic data could prompt a correction.
Stock Indices: The Dow Jones industrials closed at 10,143.80, down 8.99 on Friday and lost nearly 3% for the week. The S&P 500 closed at 1,076.76, up 3.07 but lost 3.65% for the week. The Nasdaq closed at 2,233.48, up 6.06 points but lost 3.74% for the week. We have been warning investors for some time that the effect of a U.S. economic slowdown will impact the equity markets and suggested strongly the implementation of hedging strategies. U.S. lawmakers reached an agreement on Friday to tighten restrictions on financial institutions but fell short of expectation for a real “fix”. Our bearish posture remains unchanged.
Currencies: The September U.S. dollar index closed at 8556, down 45.7 points on long liquidation in front of the weekend G20 meeting. The September Euro closed at 12393, up 55 points with the September Swiss Franc gaining 72 points to close at 9155. We continue to favor the long side of the Swiss Franc but would hold off any additions until after the results of the G20 meeting can be assessed. In other currencies the September British pound gained 104 points to close at 15038, the September Japanese yen gained 18 points to 11201, the Canadian dollar 61 points to 9650, and the Australian dollar 61 points to 8668. The attraction to the dollar remains intact as the Eurozone debt crisis persists.
Energies: August crude oil closed at $78.86 per barrel, up $2.35 and closing in on our projected $80 level. The concern over the tropical storm heading towards the Gulf of Mexico was a positive for crude but discussions among oil experts centered on the benefit that storm activity would have on breaking up crude and causing it to disperse more quickly. We suggest the sidelines until after the effects of any storm activity can be assessed. August Gasoline closed at $2.15 per gallon, up 7c and was the largest gain since May 27th. We prefer the sidelines in gasoline. August natural gas closed at $4.9080 per MBTU, up 11.5c. We had suggested that natural gas had bottomed and now look for further gains.
Copper: July copper closed at $3.0955, up 9c after trading as low as $2.9580 following the GDP data. The weak U.S. home sales was also a factor in the early selling. Shortcovering in front of the weekend and the G20 meeting in Toronto and after recent weakness the main feature on Friday. Our bearish posture remains intact since we do not believe any positive results can be forthcoming from the G20 meeting.
Precious Metals: August gold closed at $1,256.20, up $10.30 after the negative U.S. first quarter GDP and the weak new home sales data was released on Friday. Gold is also considered a “safe haven” as are treasuries and shortcovering in front of the weekend G20 meeting was the main feature on Friday. September silver closed at $19.152 per ounce, up 37.6c following gold. October platinum gained $6.30 per ounce, to $1,574.50 tied to a stalemate on wage negotiations at South Africa’s state power company. The dollar weakness also a factor. September palladium gained $7.90 per ounce to $477.90 and nearly 2% higher while platinum’s gain was only 0.57%. Our previously recommended long palladium, short platinum spread continues to work even after we suggested taking profits. Silver also performed better than gold percentage wise with a 2% gain against gold’s 0.83% gain. We would stand aside for now.
Grains and Oilseeds: July corn closed at $3.40 ½ per bushel, down 4 1/4c while December lost 4c to close at $3.60 ½. Improved crop prospects and favorable weather forecasts prompted the long liquidation. We prefer the sidelines. September wheat closed at $4.71 per bushel, down 6 1/2c on continued winter wheat harvesting. The gains last week were tied to technicals and gave way to fundamentals. We prefer the sidelines here as well. July soybeans closed at $9.57 per bushel, up 1 1/2c with the more active November closed unchanged at $9.12. A lack of fresh fundamentals kept prices from advancing further but we now favor getting back on the long side of soybeans with the November new crop contract.
Coffee, Cocoa and Sugar: July coffee closed at $1.67 per pound, up 25 points on technical momentum and fund buying. Hedge funds also have been heavy buying tied to technicals on the recent breakout through resistance. Poor harvests in Colombia and Central America prompted the buying and shortage of high quality arabica beans also a factor in recent strength. We could see further gains and would hold any longs and add on setbacks but with stops. July cocoa closed at $3,092 per metric tonne, up $8.00 with selling pressure halting additional gains achieved recently. We prefer the sidelines in cocoa since economic conditions do affect chocolate consumption. July sugar closed at 17.29c per pound, up 47 points and closed at a 10 week high on Friday. Speculative fund buying and a rally in crude prices prompted the buying. We prefer the sidelines.
Cotton: July cotton closed at 84.48c per pound, up 3 points with the active December gaining 56 points to close at 78.72c per pound. Tight supplies the main factor in the buying. We continue to favor the long side of cotton.
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 to which he introduces his clients.
