Attention was drawn away from the meetings in Davos, Switzerland, by the turmoil in Egypt. The concern that the violence could spread to the Suez Canal and prevent shipping where much of the West’s oil travels through. That could easily prompt crude oil prices to move over $125 per barrel and negatively affect the fragility of the global economic recovery. Another fear is that Egypt, currently an ally of the U.S. and maintaining a tepid attitude toward Israel, could be impacted by any takeover of muslim extremists. Gangs reportedly have freed those extremists from Egyptian prisons and the situation remains tenuous. We will have to see what develops and for that reason we are tempering our comments once again for geopolitical reasons. Now for some actual information...
Interest Rates: March treasury bonds closed at 12114, up 23 points as equity markets declined thanks to concerns over the turmoil in Egypt and some earnings disappointments. Treasuries are considered a safe haven for funds and we could see further price gains and lower yields early in the new week. We prefer the sidelines for now.
Stock Indices: The Dow Jones Industrials closed at 11823.70, down 166.13 on Friday tied to the civil unrest in Egypt. U.S. GDP was also a cause for the selling having come in lower than expected. The S&P 500 closed at 1276.34, down 23.20 while the Nasdaq lost 68.39 points to close at 2686.89. For the week the Dow lost 0.4%, the S&P 500 0.5%, and the Nasdaq 0.1%. We continue to view the U.S. economic as in a recessionary grip regardless of the rhetoric emanating from Washington. Their continued assessment showing a recovery albeit slower than desired, makes no sense to me in the face of continued high unemployment. Implement hedging strategies before it is too late.
Currencies: The March U.S. dollar index closed at 7828 up 42.6 points as concern over the turmoil in Egypt prompted a flight to the relative safety of U.S. treasuries and dollars. The March Euro lost 1.13c to close at 13609, the Swiss Franc gained 42 points to 10619, and the Japanese yen gained 97 points to 12175. The March British pound lost 67 points to close at 15863 and the Canadian dollar lost 62 points to 9989. The Australian dollar managed a 12 point gain to close at 9885. The Euro is the currency of 17 European countries and the impact of a Suez canal closure would have a disastrous effect on European economies. We prefer the sidelines.
Energies: March crude oil jumped to $89.49 per barrel, gaining $3.85 on the concern over possible disruption of crude through the Suez Canal. March heating oil gained 4.29c to close at $2.6980 per gallon and unleaded gasoline gained 7.18c to close at $2.4850 per gallon basis the March contract. We remain sidelined.