Analysts and economist continue to amaze me with predictions that are so wrong as to make their expectations irrelevant. I have to re-state my old axiom, "better to keep ones mouth shut and be considered ignorant, than to open it and remove all doubt."
The expectations for January non-farm payroll employment ranged up to 150,000 jobs created. The actual figure reported was for a gain of only 36,000 jobs in January. The gains in manufacturing and retail sectors were partly offset by job losses in construction, transportation and warehousing sectors. However, the severe weather could be responsible for construction numbers. The unemployment rate dropped from 9.4% in December to 9% flat for January but a decline in the actual size of the labor force could have prompted that adjustment. Economists had expected a gain to 9.5%, wrong again. I don’t know what these guys get paid, but in my opinion, it’s too much.
The U.S. economy is projected by those analysts to sustain a "jobless recovery". Don’t believe it. "Unemployed consumers do not consume and the manufacturers of those (unconsumed) products will be next to lay off workers". The only way the weekly number of first time unemployed will improve is through available reduction. By that I mean there will be fewer people available to lay off without shutting the doors of some companies. That reduction of weekly numbers will no doubt be lauded as an improving job condition. A situation that will provide false optimism about the jobs market. With 17 million people either unemployed or under employed due to their having taken jobs paying much less that they are accustomed to, or even in other industries like lemonade stands, those numbers are actually worse than publicized. In conclusion of my tirade, a jobless recovery is an oxymoron in my opinion. Now for actual information...
Interest Rates: March treasury bonds closed at 11728, down 107 tied to the perception that the job situation is improving. The January U.S. labor report failed to dissuade longs from selling and new shorts implemented on the assumption that weather had an effect on new jobs and the reduction in the unemployment rate also a factor. We could see shortcovering early in the week on a correction after yields hit 9 year highs.
Stock Indices: The Dow Jones industrials closed at 12092.15, up 29.89 and managed a 2.3% gain for the week. The S&P 500 closed at 1310.87, up 3.77 and gained 2.7%. The Nasdaq closed at 2769.30, up 15.42 and rose 3.1% for the week. The positively construed U.S. economic data prompted the buying even against the confusing January jobs report and concern over the instability in the Middle East and elsewhere. We continue to suggest implementing hedging strategies in expectation of another stock selloff.
Currencies: The March U.S. dollar index closed at 7818, up 31.3 points as U.S. yields made 9 year highs on better than expected U.S. economic data. While the jobs report failed to offset the positive data since weather was a factor in the confusing labor data. The March Euro lost 50 points to close at 13579, the Swiss Franc lost 1.15c to close at $1.0470, the March British pound lost 52 points to 16091, and the Japanese yen lost 89 points to 12162. The March Canadian dollar managed a 22 point gain to 1.0115, but the Australian dollar lost 8 ticks to close at 10092. We do not expect the dollar to make headway tied to our expectation of a yield correction and a shortcovering rally in treasuries.
Energies: March crude oil lost $1.42 on Friday to close at $89.12 against the dollar strength and reports that the U.S. is pressuring Egyptian President Mubarak to resign and bring an end to the conflict and protests. We do not believe the departure of Mubarak will positively affect the Egyptian economy nor allay the concerns of a possible Muslim attempt at power. Concern exists that some element will try to cause shipping delays through the Suez Canal or depot and pipeline facilities. We prefer the sidelines.
Copper: March copper closed at $4.5795, up 3.5c on the U.S. jobs data showing a decline in the unemployment from 9.4% to 9% flat. We prefer the sidelines but maintain our bearish posture. Precious Metals: April gold closed at $1,349 per ounce, down $4.00 tied to the dollar strength. Recent buying was tied to the conflict in Egypt and elsewhere that led to gold buying. We prefer the sidelines. March silver closed at $29.059 per ounce, up 33.1c following gold. Silver has outperformed gold overall even as the media has emphasized the need for gold in portfolios. April platinum closed at $1.845.80, up $1.70 per ounce with March palladium losing $4.10 per ounce to close at $816.45. With geopolitical events directing the trading in precious metals, we prefer the sidelines.
Grains and Oilseeds: March corn closed at $6.78 ½ per bushel, up 16c on bullish fundamentals and expectation that corn exports will increase tied to striking port workers in Argentina, the world’s second largest exporter. We like corn but only on setbacks. March wheat closed at $8.53 ¾ per bushel, down 5 1/4c on profittaking after recent gains. Continued weather concerns in Australia and Canada could prompt additional buying for wheat. We prefer the sidelines. March soybeans closed at $14.33 ½ per bushel, down 2c on profittaking in the nearby contracts while supply concerns prompted buying in the back months. We prefer the sidelines for now.
Coffee, Cocoa and Sugar: March coffee closed at $2.4905 per pound, down 25 points after achieving 13 year highs. Concern that coffee stockpiles declined in producing countries continues to prompt bullish ideas but we prefer the sidelines awaiting a correction before reassessing this market. March cocoa closed at $3250 per tonne, down $1.00 and is consolidating on a technical basis. Recent rallies were prompted by Ivory coast’s President-elect banning exports for a month while the disputed election is being determined. We do not engage in trading markets with geopolitical implications. March sugar closed at 32.64c per pound, up 6 points and made a new 30 year high. The sugar cane in Australia was damaged and output had already been cut by 21% from previous flood damage. Australia is the third largest sugar producer and the projected shortages could prompt additional buying in sugar. We like sugar but only on setbacks and with stop protection.
Cotton: March cotton closed down the 4c limit for the second day in a row closing at 16786 after making a 140 year high during the Thursday session. The start of the Chinese lunar year impacted trading in advance of the annual survey of cotton planting intentions by the National Cotton Council. We will await that report before commenting further.
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.