Expectations for a retail sales surge on "Black Friday," where retailers mark down prices the day after Thanksgiving to entice shoppers to rush to buy their wares, are yet to be analyzed. The trepidation caused markets to gyrate but the main concern continues to surround the European debt crisis where Spain was added to the list of problematic countries. Spain is the largest of the countries named previously as needing a bailout and our concerns relate to whether or not the Euro can sustain such calamitous debt.
One of our major concerns is the potential for war on the Korean peninsula. China, in our opinion, is the only hope for peace as the world awaits their decision on whether or not to recognize that North Korea has instigated the current crisis and effectively "control" its errant "sibling," North Korea. Our view is that the Chinese will procrastinate as long as it can but if the North launches another attack on the South, all bets are off and the South in conjunction with the U.S. will retaliate. There will be a war, in our opinion, if China does not intercede.
Our various commentaries will reflect our concerns. With the above in mind, we will forego any recommendations this week.
Interest Rates: December Treasury bonds closed at 12717, up 101 on a correction after the sharp selloff of Wednesday, the day before Thanksgiving.
Stock Indices: The Dow Jones Industrials closed at 11092.00, down 95.28 points tied to geopolitical concerns including the Korean situation, Chinese austerity programs to fight rampant inflation, and the growing debit crisis in Europe. The S&P 500 closed at 1189.40, down 8.95, while the tech heavy Nasdaq closed at 2534.56, down 8.56. For the week, the Dow lost 1% while the S&P 500 slid 0.9%. The Nasdaq gained 0.7% for the week reflecting the strength in techs. We prefer the sidelines with our usual admonition of implementing hedge strategies for large portfolios.
Currencies: The December U.S. dollar index closed at 8043.3, up 73.8 points as it is perceived as a safe haven in times of global crisis and the European debt crisis. We prefer the sidelines after having suggested some weeks ago to take the profits on the long Swiss franc positions.
Energies: January crude oil closed at $83.76 per barrel, down a thin dime tied to the U.S. dollar strength. Concern that the European and U.S. recessions may curtail some demand for energy products, we could see still lower prices but the Korean situation must be taken into consideration. Any conflict could cut supplies and prompt higher prices. Under normal conditions, we expect prices to decline based on our continued view of a recessionary global economic condition.
Copper: December copper closed at $3.7510 per pound, down 45 points against the dollar in which it is denominated and the ongoing European debt crisis. We remain bearish for copper.
Precious Metals: December gold closed at $1363.50, down $9.50 per ounce tied also to the strong dollar. We continue to prefer the sidelines but once again, as with other markets, should war break out on the Korean peninsula, all bets are off. December silver closed at $26.699, down 82.9c per ounce while December palladium lost $18.50 per ounce to close at $676.50. January platinum closed at 1654.30, down 4.10.
Grains and Oilseeds: December corn closed at $5.38 ¼ per bushel, down 1/2c tied to the strong dollar and on low volume. Concern that China’s expected move to increase margin requirements for agricultural commodities could impact prices and demand even though China is expected to buy U.S. corn in 2011. We prefer the sidelines. March wheat closed at $6.87 ¼ per bushel, up 2c tied to concern about poor weather that could threaten crop quality and output. We prefer the sidelines. Too much depends on China and whether they will take any action on putting pressure on North Korea to halt aggressive acts. March soybeans closed at $12.47 per bushel, down 15 3/4c tied to Chinese economic action and the strong dollar. We prefer the sidelines.
Coffee, Cocoa, Sugar: December coffee closed at $2.0215, per pound, down 5c as Vietnamese farmers started harvesting coffee after rain delayed picking for nearly a month. We prefer the sidelines. December cocoa closed at $2756 per tonne, down $9.00 tied to the dollar strength. March sugar closed at 28.25c per pound on worries that shipments could be delayed from India, the world’s second largest producer after Brazil. We prefer the sidelines.
Cotton: December cotton closed at 1.1606 per pound, down 33.3c for its biggest weekly drop since February of 2009. Chinese efforts to curb speculative trading in farm products and in order to control inflation the main reasons along with the strong dollar. We continue to 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.