This week's action was dominated by concerns over whether or not China would raise their base interest rate and affect changes in currencies, especially the Yuan relationship to the U.S. dollar. On Saturday, China did just that tacking on 25 basis points, which is the second rate increase in a little over two months. Their intention to fight inflation could cause widespread price activity across the board in commodities and possibly equity markets. We are reluctant to make any prediction during this holiday week. A blizzard expected to hit New York with between 11 and 16 inches of snow and high winds could prompt many traders and investors to stay home and light volume is never a good sign for any markets. Now for some information…
Interest Rates: March Treasury bonds closed at 12014, down 11 ticks on Friday against gains in equities where money moves back and forth. We prefer the sidelines but could, in the event of an equity market selloff, see money transfer back to treasuries.
Stock Indices: The Dow Jones industrials closed at 11573.49, up 14.00 tied to better than expected economic data. For the week the Dow managed a gain of 0.7%. The S&P 500 closed at 1256.77, down 2.07 and up 1% for the week. The Nasdaq closed at 2665.60, down 5.8 but up 0.9% for the week. The Reuters and University of Michigan consumer sentiment index was revised upward to 74.5 for December but less than the 75.0 analysts expected. The U.S. Labor Department reported few jobless claims at 420,000, down 3,000 but in line with expectations. Durable good orders declined by 1.3% in November against economist expectation for only a 1% decline. New Home sales were up 5.5% for November against economist expectations for a rise of 6%. We continue to view equities as overbought and look for a sharp decline. However, timing is the key "missing" element. Once again we suggest strongly that those investors with large equity portfolios contact us for hedging strategies.
Currencies: The March U.S. dollar index closed at 8083, down 34.3 points against gains in the Euro of 28 points to 13111, The British Pound 45 points to 15404, the March Yen 98 points to 12072, the Canadian dollar 52 points to 9900 and the Aussie dollar 56 points to 9952. The March Swiss Franc gave back 86 points to close at 10426 but still above parity with the dollar. Based on the question of what impact the Chinese rate increase will have on the currency market, we are on the sidelines.
Energies: February crude oil closed on Thursday at $91.41 per barrel, up 93c on positively construed U.S. economic data. February heating oil closed at $2.5535, per gallon, up 1.33c while February unleaded gasoline gained 1.82c to close at $2.4251 per gallon. The U.S. Department of Energy reported Wednesday that crude stockpiles were down for the third week in a row and that prompted shortcovering and new buying across the energy spectrum. We prefer the sidelines but our overall view remains bearish even as some analysts are calling for $1.00 plus per barrel. Our assessment of global economies remains negative.
Copper: March copper closed at $4.2585 per pound, down 1.65c on profittaking after recent price gains. The stronger than expected U.S. economic data on Thursday kept prices from declining further. Our overall opinion remains negative based on our global economic opinion.
Precious Metals: February gold closed at $1,380.50, down $6.90 even as Portugal’s sovereign debt rating was downgraded and U.S. economic data was positive. Concern that Portugal, a high holder of gold may be considering selling off some of their gold and that also put pressure on prices. We refer the sidelines. March silver closed at $29.328 per ounce, down 5.7c following gold. Trading was light in front of the three day holiday weekend. January platinum closed down $7.80, to close at $1,723.10 while March palladium was up $2.95 per ounce at $758.10. We expect choppy condition during the holiday week culminating in the end of the year. Wait until the New Year and a return to volume in these markets before making any trading decisions.
Grains and Oilseeds: March corn closed at $6.14 per bushel, up 5c on global supply concerns. Corn closed at its highest price since July of 2008. Stand aside. March wheat closed at $7.83 per bushel, down 1/2c in choppy trading. We prefer the sidelines. March soybeans closed at $13.60 per bushel, up 20 1/4c on good demand and concerns over the development of the Argentinian crop. Weather remains a problem and we could see further buying but with light volume expected in the coming shortened week, we prefer the sidelines.
Coffee, Cocoa, Sugar: March coffee closed at $2.3650, per pound, up 60 points. March cocoa closed at $3022 per tonne, up $2.00. March sugar closed at 33.85c per pound, down 13 points. Due to concerns over conflicts in Nigeria and Ivory Coast, we are not commenting on these markets.
Cotton: March cotton closed at $1.4812, down 6c. We have no comment but profittaking in front of the holiday shortened week could carry further after recent monumental gains.
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.