Friday the 13th came and went leaving equity and commodities markets reeling in its wake. Higher food and energy prices along with the spectre of flooding in large areas of the South caused consternation this past week. The ongoing labor situation along with continued mortgage defaults and foreclosures weighing heavily on the U.S. economy. Late week U.S. dollar strength tied to Euro zone concerns also played a role in the weeks commodities and equities activities. We suggest a conservative approach to trading and will advise clients during the week as to opinion changes. We will be watching the flooding in the Mississippi River area very closely for reports of crop production losses. Now for some actual information.
Interest Rates: June Treasury bonds closed at 12414, up 20/32nds tied to the dollar strength and the weak equity markets. Treasuries are a safe haven during stressful times and concerns. The EuroZone situation worsened this past week and drove funds to the relative safety of U.S. treasuries. The Labor Department report on higher consumer prices early Friday led to concerns of a Fed rate rise and that prompted early selling in Treasuries. Bonds traded down to the days low of 12322 before the "flight to safety" of treasures and a weak equity market brought prices back to the middle of the days range. We continue to favor the short side of treasuries on the basis of a possible U.S. rate increase to fight possible inflation.
Stock Indices: Our oft repeated admonition to implement hedging strategies rang true this past week as all three major indices lost previously achieved gains. The Dow Jones Industrials closed at 12,595.75, down 100.17 points and lost 0.3% for the week. The S&P 500 closed at 1337.77, down 10.88 and posted a weekly loss of 0.2%. The tech heavy Nasdaq closed at 2828.47, down 34.57 and unchanged for the week. Concern over the European financial situation played a part in the weakness on Wall Street and the dollar strength was also a factor. A Labor department report showed consumer prices rose by the fastest annual pace in over two years in April. Consumer prices were up 3.2% from the prior year and posted the fastest growth since late 2008. We could see further choppy action in both equities and commodities and repeat our suggestion to review portfolios, lighten up on non-essential producers and implement hedging strategies.
Currencies: The June U.S. dollar index closed at 7590, up 48.3 points on concerns of EuroZone sovereign debt problems. The debt problems with Greece, Ireland and Portugal once again raised the question of the viability of a single Euro currency. We had stated in earlier commentaries that we did not believe the European countries participating in the Euro could be balanced in terms of their differing economies and GDPs. We could see further declines in the Euro, which closed at 14058, down 118 on Friday. The June Swiss Franc closed at 11211, down 90 while the June British Pound lost 110 points to close at 16168. The Canadian dollar lost 53 points to 10321 and the Australian dollar lost 72 points to 10543. The June Japanese yen managed a gain of 11 points to 12371 but the situation with Japan, after the devastating earthquake, tsunami, and nuclear facility problems had early prompted losses. We favor the dollar on the basis of our expectation that positive U.S. economic data will continue to put pressure on the Federal Reserve to reconsider their position of easing in favor of a rate increase. That would prompt renewed dollar buying against the U.S. trading partners.
Energies: June crude closed at $99.65 per barrel, up 68c and for the week gained 2.5% but that was a correction after the previous weeks sharp losses. We continue to suggest prices for crude will decline to the $80-85 per barrel level based on supplies and demand declines. However, we could see gasoline prices continue to gain based on the refinery problems associated with the tremendous flooding on the Mississippi River heading for those refineries on the Gulf Coast.
Copper: July copper closed at $3.9750 per pound, up 1.45c on shortcovering after the recent sharp selloff. We have been bearish for some time and would now take some profits on the puts I had suggested buying for the past few months. Stronger than expected European growth figures accounted for the buying.
Precious Metals: June gold closed at $1,493.60 per ounce, down $13.20 tied to the dollar strength and followed the weak Euro. We continue to favor the sidelines in gold. July silver closed at $35.013 per ounce, up 21.6c on shortcovering even against the dollar strength but I view the gain in silver as shortcovering after the lost of over 30% in previous weeks. Stay out for now. July platinum traded at $1767.50 per ounce down $3.50 while June palladium lost $8.95 per ounce to close at $707.90. We prefer the sidelines for now.
Grains and Oilseeds: The yet to be determined damage to crops in the flooded area of the South precludes any comment for now other than to say do not be short. That also goes for sugar and cotton this week.
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.