Wide price swings in both equities and commodities are causing concern among investors and traders alike. The ongoing protests and violence in oil producing countries that pushed crude oil prices to over $104 per barrel quashed any hope of advancing an economic recovery. Thursday’s decline of first time unemployment to under 400,000 and the unemployment rate dipping to 8.9% from 9% was hardly enough to garner enthusiasm and provided little comfort to investors. The recent two year extension of the Bush tax cuts was also of concern as relates to forward corporate planning. The current adversarial atmosphere in the administration between Republicans who are promoting deep spending cuts, and the Democrats who do not approve of the subject of those cuts continues to dominate the economic picture and causing consternation of analysts trying to determine forward economic and market direction.
Interest Rates: March Treasury bonds closed at 12028, up 27 tied to the selloff in equities and the movement of money, once again, to the relative safety of treasuries. Recent selling of Treasury bonds may have been overdone and due for a correction but Fridays equity selloff accelerated the correction. New orders for U.S. manufactured goods increased by more than analyst expectations in January. Factory orders were up 3.1% against economist expectations of a smaller increase of around 2%. Transportation equipment accounted for much of the gain. We favor the sidelines but with a view to the short side of treasuries on the basis that the administrations and Feds assessment of an "economic recovery" could prompt rate increases.
Stock Indices: The Dow Jones industrials closed at 12169.88, down 88.32 but up from the lows of around 12069.51 during the session. The Dow still managed a weekly gain 0.3%. The S&P 500 closed at 1321.15, down 9.82 but as with the Dow, up from the composite lows during the session around 1312.59. For the week the S&P managed a gain of 0.1%. The Nasdaq closed at 2784.67, down 14.07 but also managed a weekly gain of 0.1%. The jump in crude oil prices tied to the chaos in Libya and the protests in other oil producing countries prompted the price gains in crude and consequently growing concern over Western economies struggling to maintain a meager recovery. We once again suggest implementing hedging strategies.
Currencies: The U.S. dollar index closed at 7871.5, down 7 points basis the June contract. The dollar lost the most against the euro in nearly four months and lost against the Japanese yen. The June Euro gained 280 points to 139640 and the Japanese yen gained just 4 ticks to close at 12153. The June Swiss Franc closed at 10804, up 65 points. The Australian dollar lost 20 points to 10006 and the June Canadian lost 5 points to 10261. The dollar was also pressured by higher crude prices impacting the economic recovery and lower numbers of workers hired by companies in February than expected by economists.
Energies: April crude oil closed at $104.42, up $2.51, its highest closing level in over 2 years Friday tied to the chaos gripping Libya. The ruler of Libya, Col. Qadhafi refuses to give up power and is killing his own people. Unfortunately the U.S. mentioned considering creating a "no-fly zone" over Libya to keep Quadhafi’s planes from bombing and strafing civilian rebels. I do not believe the U.S. should take a position with confirmation by the U.N. and Nato. We have enough going on in the world without taking sides in a geopolitical event within a country. Anyway, stay on the sidelines for now but be prepared to short crude or buy put options for the eventual resolution of the Libyan situation and a return to supply/demand considerations which I feel will bring crude price back to the $70-75 level. Once again timing is the question, and I do not have the answer…….in this case.
Copper: May copper closed at $4.4855 per pound, down 0.45 points following equities. Profittaking at current price levels was also a factor but copper still managed to hold to a small loss for the day. We continue to feel rhetoric surrounding a supposed economic recovery is misguiding investors and we still expect copper prices to decline once the far east buying subsides. Start to look at put buying.
Precious Metals: April gold closed at1433.10, up $16.70 as concern over the turmoil in the Middle East and North Africa continues to permeate the investment arena. Gold is considered a safe haven during tumultuous geopolitical events. July silver closed at $35.83 per ounce, up $13.01 following gold. Silver has actually performed better than gold on a percentage basis and remains our preference of the two metals. April platinum closed at $1844.80, up $11.80 while June palladium lost $1.60 to $813.20 per ounce. We prefer the sidelines in metals.
Grains and Oilseeds: March corn closed at $7.21 ¼ per bushel, down 8 1/2c on profittaking after touching a nearly three year high and still managed a gain for the week. Supplies remain a concern and I look for additional shortcovering and new buying into the new week. We expect the USDA to report additional supply cuts tied to increases in demand. May wheat closed at $8.32 ¼ per bushel, up 8 ¾c tied to the weak dollar and weather concerns. We prefer the sidelines in wheat although further buying could take place early in the week. May soybeans closed at $14.14 per bushel, up 2c and remains rangebound. We prefer the sidelines in soybeans for now although good export demand could prompt a breakout of the range to possibly $14.35-14.50 area.
Coffee, Cocoa and Sugar: May coffee closed at $2.7380, up 1 full penny per pound on strong demand and supply concerns. The strength in arabica beans hit the highest level since May of 1977 Friday on concern over availability of quality beans. We prefer the sidelines for now but traders could buy the dips with close stops. On Thursday the United Nations Food and Agriculture Organization said its "food-price index rose 2.2% in February" and tied to the high energy costs created by turmoil in the crude producing countries, inflation is a reality in our opinion. May cocoa closed at $3,850 per tonne, up $7.00 and continues to be effected by Ivory Coast concerns. Cocoa hit a 32 year high tied to political violence in Ivory coast which may effect deliveries out of that country. May sugar closed at 29.89c per pound up 1 point and seems to have bumped into overhead technical resistance. We prefer the sidelines but demand could prompt new buying.
Cotton: May cotton closed at $2.1270, up the 7c limit again, and a record high on Friday. Cotton has now doubled in price over the last six months. Smaller crops from India, Pakistan and China have impacted global stocks. Also continued hoarding by Chinese farmers a factor. However, while demand remains strong U.S. exports are up over 41% this season over last year according to the USDA. We feel cotton is overdone and we would look to buy cotton puts on the July contract.
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.