I find it hard to believe that no one is associating the job creation numbers with the first time unemployed numbers. Every week over 400,000 first time unemployed workers apply for assistance while every month a number is given on jobs "created". So the disparity on a monthly basis of 103,000 jobs created against two million first time unemployed fails to address the underlying problem. Too many people, i.e. consumers, are out of work and the rhetoric tied to the euphoria of "jobs created" is utterly confusing. Until which time as a real reduction in weekly first time unemployed numbers, and that, if it occurs, only means there are fewer workers to lay off, and does not signify an "improvement" in the labor situation.
The bottom line is that over 15 million people are either out of work, or sought incomes through other avenues such as home businesses. The number 9.8% which was reported down to 9.4% is a "fictitious", in my opinion, representation of the true picture for labor. The ongoing problem of loan defaults and home mortgage foreclosures remains the major roadblock to the construction industry where hundreds of thousands or even millions of workers jobs are at risk.
The various industries associated with the construction industry including trucking, transportation, durable goods such as appliances etc., and raw materials handling are all at risk and there is no solution in the near term. Our current economic condition, while portrayed by the U.S. administration as in recovery, is simply not in recovery and the "productivity" gains are tied to having people do more than one job. Similarly, earnings based on "cost cuts" are not earnings at all no matter the "description" applied to financials. The U.S. and its global trading partners remain mired in recession in my opinion, as I for one see no immediate answer.
Now for some actual information in order to help my readers formulate specific trading ideas...
Interest Rates: March Treasury bonds closed at 12031, up 28/32nds as the disappointing jobs data pressured yields. Analysts had expected new job creation to be near 200,000 and the 103,000 jobs reported was a disappointment indicating that rates could not move higher prompting the buying in treasuries. With rates at all time lows and the fed funds rate between zero and a quarter point, it is not likely that the Fed will advance any rate increasing ideas for now. Fed Chairman Bernanke made the statement that "it could take as many as five years for the unemployment rate to normalize", and that helped bonds. He also inferred that the Fed would not be taking action to help the states with there severe financial difficulties. We prefer the short side of treasuries however, based on the current low yields and rates. Use stop protection should any talk of further rate cuts for 10-30 year paper emerges.
Stock Indices: The Dow Jones industrials closed at 11,675, down 23 points but managed a weekly gain of 0.9%. The S&P 500 closed at 1272, down 2 points but with a weekly gain of 1.1%. The tech heavy Nasdaq lost 7 points to close at 2703 but also managed a weekly gain of 1.9%. An adverse foreclosure ruling was detrimental for banks and that pressured some segments of the averages. The weekly gain was attributed to the early week optimism for the New Year but our persistent expectations are for a subdued "enthusiasm" as the year continues. We have one overriding reason for our pessimism and that pertains to the U.S. labor market and the mortgage and loan credit debacle. Implement hedging strategies.
Currencies: The March U.S. dollar index closed at 8132.10, up 22.8 points against losses in the Euro of 81 points to 12929, and the Swiss Franc 10 points to 10382. Gains were still managed for the March British pound, 80 points to 15541, the March Yen 35 points to 12051, the Canadian dollar 39 points to 10063, and the Aussie dollar 13 points to 9874. European debt problems continue to concern economists even as U.S. economic data was positive and as the "consumer of the world" the U.S. economic data provides the stimulus for any European recovery. We prefer the sidelines but with the Swiss Franc and the Canadian dollar both at a premium to the U.S. currency, some "shift" or correction is to be expected.
Energies: February crude oil closed at $88.03 per barrel, down 35c as disappointment over the fewer than expected U.S. jobs pressured the market. Our continued expectation of prices eventually settling into a range between $75 and $80 a barrel is based on our pessimism towards any recovery in the areas of energy consumption. Inventories of crude at the Cushing, Oklahoma delivery point for Nymex futures reportedly rose to 37.5 million barrels in the week ending December 31st, its highest level since early August. Stay out for now unless you actually deal in energy physicals.
Copper: March copper closed at $4.2840 per pound, down 4.55c tied to the fewer jobs than expected reported by the U.S. labor department. Demand for copper in recent months has been tied to individual entity speculation and buying and not to the reasonably anticipated demand from industry. Inventories at the LME were up 125 metric tonnes on Friday to 379,525. The recent Comex inventory report on Thursday showed unchanged at 64,888 short tons.The weekly data from the Shanghai Futures Exchange showed a rise of 275 metric tonnes to 132,166. We remain bearish for copper.
Precious Metals: February gold closed at $1,368.90 per ounce, down $2.80 tied to the U.S. employment report but the Fed Chairman’s comments on the slow pace of U.S. economic growth kept prices from slipping further. A strong economy leads to inflationary ideas and that would be helpful for gold which is seen as a hedge against inflation. March silver closed at $28.671 per ounce, down 4.45c following gold. April platinum gained $3.320 per ounce to $1,738.30 tied to positive expectations for the auto industry which uses platinum in its catalytic converters. March palladium followed gold and silver to close at $755.95 per ounce, down $6.95. We prefer the sidelines in metals except for astute and financially capable traders.
Grains and Oilseeds: March corn closed at $5.95 per bushel, down 7c tied to U.S. dollar strength after reaching two and half year highs early in the week. The continue weather concerns and hot dry conditions in Argentina, the world’s second largest grain exporter prompted the recent rally and Fridays weakness was also tied to the anticipated correction. We could see renewed buying in the coming week as weather continues to present a problem for the growing areas. March wheat closed at $7.74 per bushel, down 15c on the dollar strength and on technical correction after recent strength that had been tied to cold U.S. weather in the growing areas. We could see support early in the week but we prefer the sidelines. March soybeans closed at $13.65 per bushel, down 13c tied to the dollar strength but found support on concerns that "significant dryness" could affect crops in South American growing areas. We like soybeans but would only buy on continued early weakness this week and with stop protection.
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.