“No joy in Mudville”. While the U.S. unemployment rate fell to a seasonally adjusted 9.5% in June from the 9.7% in May, it was based on only 60,000 households. Unfortunately it also reflected 650,000 people dropping out of the labor force due to the inability to find jobs and retirees not expected to seek new jobs. The numbers reported also reflect a decline of 350,000 unemployed to 14.6 million in June while employment fell by 301,000 to 139.1 million. U.S. factory orders dropped 1.4% in May, the largest decline in 14 months. These numbers clearly indicate a stalled recovery and must be addressed before the “recovery” pace can resume and improve consumer and investor sentiment. Now for some actual information that can hopefully assist our readers in making investment decisions.
Interest Rates: September Treasury bonds closed at 12705, down 27 points after making a new high of 12809 intraday. The recent rally in treasury prices and the resulting declines in yields were tied to investor concerns over the European debt crisis and weaker U.S. economic data. We may have finally seen the highs in treasury prices and we would look to buy put options on treasury bonds. While the Federal Reserve is not likely to raise rates given the poor economic data and the ongoing labor situation, rates, in our opinion, are not likely to continue their decline and that creates the basis for our recommendation.
Stock Indices: The Dow Jones industrials closed at 9686.48, down 46.05 and lost 4.51% for the week. The S&P 500 closed at 1,022.58, down 4.79 points and lost 5.03% for the week. The Nasdaq closed at 2091.79, down 9.57, and lost 5.92% for the week. Our bearish posture has been tied to the ongoing labor situation and the weekly first time unemployment number of over 470,000. The weak U.S. economic data serves to reinforce our bearish view of both the economy and the equity markets. We continue to suggest implementing hedge strategies but now would need a correction to make such strategies meaningful.
Currencies: The September U.S. dollar index closed at 8470.5, up 3.5 points but remained weak against the Euro, which closed Friday at 12557, up 76 points. The Swiss Franc lost 7 points to close at 9417 but on profittaking after its recent rise. The September British pound closed at 15194, up 48 points, the Japanese yen lost 34 points to 11410, and the Canadian dollar lost 37 points to close at 9393. The Australian dollar managed a gain of 18 points to close at 8352. The disappoint U.S. economic data prompted the recent dollar “give-back” and we could see further long liquidation early in the new holiday shortened week. We remain positive on the Swiss Franc. We look for choppy Forex trading in the near term.
Energies: August crude oil closed at $72.14 per barrel, down 81c and lost 8.5% for the week. August heating oil lost 2.3c to close at $1.9155 while gasoline closed at $1.9777, down $1.99. August natural gas closed at $4.687, down 16.7c or 3.44% on Friday and 4.1% for the week. Concerns of a continued global growth slowdown prompted the selling in energy products on the basis of reduced energy demand. We had forecast a decline from the $85 per barrel level to the $70-75 level and our intermediate goal was achieved this week. We are now on the sidelines but could see a corrective rally in the coming sessions
Copper: September copper closed at $2.9160 per pound, up 3.9c on shortcovering after recent weakness. Some traders also indicated that the U.S. employment data was not as bad as expected and that also factored into the buying on Friday in front of the three day weekend. We retain our bearish stance on the basis of our expectation of a continued U.S. and global recession.
Precious Metals: August gold closed at $1,207.70, up $1.00 on light volume in front of the holiday weekend. Buyers might have been “scared off” after Thursdays $40 per ounce selloff. Poor economic data lessens concerns of inflation. We could see further choppy action early in the week and would await further fundamentals before taking any action. September silver closed at $17.719 per ounce, down 7.1c. October platinum lost $3.20 per ounce to close at $1,503.60 while September palladium lost $2.15 per ounce to close at $426.90. We reserve comment since we are now precious metals agents. See our revised website for information.
Grains and Oilseeds: July corn closed at $3.64 per bushel, down 1 1/2c while December lost 3/4c to close at $3.72 ½. Corn retraced some recent gains with favorable weather providing pressure. We prefer the sidelines. September wheat closed at $5.03 per bushel, up 3/4c making the weekly gain 32c on technical and new fund buying. We prefer the sidelines. November soybeans closed at $9.05 ¾ per bushel, up 1/4c on tight supplies and weather concerns. We are back on the bullish side of soybeans and would buy on any dips.
Coffee, Cocoa and Sugar: September coffee closed at $1.6430 per pound, down 3.95c on profittaking after gains on Thursday and on negative U.S. economic data. We prefer the sidelines. September cocoa closed at $2,971 per tonne, down $70 in thin trading and profittaking after Thursdays gains and in front of the three day holiday weekend. With the U.S. celebrating its Independence Day holiday global commodities will be open and traders preferred to even up their positions. October sugar closed at 16.7c per pound, up 42 points on shortcovering tied to supply concerns. Brazilian producers appear to be withholding raws awaiting results of Indian monsoon rains. We would now move to the long side but with stops.
Cotton: December cotton closed at 75.53c per pound, down 92 points tied to weak U.S. economic data which could impact demand. We prefer the sidelines.
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 to which he introduces his clients.