While the Friday jobs data was viewed as positive, it was hardly enough to confirm any economic recovery. On Thursday the reported 400,000-plus first time unemployment on a weekly basis overshadows the positively construed report Friday of 103,000 jobs gained in a month. The unemployment rate remained at 9.1% but the true rate of unemployed and underemployed (those who took jobs paying much less than the jobs they lost) is upward of 17%. The ongoing debt crisis in Europe has now prompted another rating agency, Fitch, to downgraded the debt of Italy and Spain, something I had suggested could occur some time ago. Italy is probably the fourth largest economy in the Eurozone and presents a real problem for the ECB and IMF who are scrambling to put together bail packages for Greece to avoid other critical Euro problems. Moodys rating agency is now looking at Belgium as another possible candidate for a debt rating downgrade. As I had criticized the actual creation of a common currency, the Euro, for 17 countries each with its own economy, GDP, etc, my doubts are now coming to fruition. I expect at least a modification of the Euro as to which countries will be forced to revert to individual currency status and removed from the Euro. I have been joined of late by other analysts in suggesting we never left the recession regardless of its directionary description of succeeding negative GDP quarters. I continue to expect further economic deterioration. Now for some actual information.
Interest Rates: December Treasury bonds closed at 14110, down 1 and 4/32nds on the jobs data which prompted initial gains in equities and moving of money from the safety of treasuries back to equities. The early estimates of jobs gained was around 75,000 and the 103,000 jobs reported was a positive for equities and a negative for treasuries. We continue to expect declines in equities and sporadic transfer of funds to treasures. We view treasuries as a trading affair with wide price ranges. Our overall expectation is for the eventual stagnation of the interest rate structure and would avoid take long term positions.
Stock Indices: The Dow Jones industrials closed at 11103.12, down 20.21 on Friday but still managed a weekly gain of .18%. The S&P 500 closed at 1155.46, down 9.51 but posted a weekly gain of 2%. The tech heavy Nasdaq, which had declined the most recently, closed at 3814.05, down 16.25 but managed a weekly gain of 2.7%. Equities initially benefited from the jobs data but later in the session as the "reality" of a possible European crisis expansion, which will take it’s toll on global economies, stock prices declined and closed lower on the day.We continue to suggest implementing hedging strategies since we view the global economies as generating into a deeper recession.
Currencies: The December U.S. dollar index closed at 7908.5 on Friday, down 3 ticks but has been strong in recent sessions tied to the ongoing concern over the European debt crisis. The December Euro closed at 133.81, down 36, the Swiss Franc 57 points lower at 10804, and the Japanese yen 38 points to 13030. Gains were posted in the British pound, 122 points to 15544, the Canadian dollar 2 ticks to 9611, and the Australian dollar 25 points to 9700. Our overall view is that of a continuing crisis for the Eurozone and could see continued dollar strength. Weakness in the Swiss Franc is mostly tied to the Swiss Central Banks pressure on its currency to avoid inflation.
Energies: November crude oil closed at $82.98 per barrel, up 39c after a choppy and "nervous" session and maintained the early gains prompted by the better than expected jobs data. We continue to view energy as a trading situation tied to the almost daily changes in the news from the EuroZone and the economic data from Washington. To simplify, a continued recession will impact demand and prompt lower prices, conversely any geopolitical or weather related impact on production could prompt higher prices. Do I have a firm opinion? Yes, I expect the recession to deepen and that will negatively impact demand and prompt lower prices, probably to the $70-75 level for crude once again.
Copper: December copper closed at $3.27 per pound, up 3c mostly on a correction after the recent decline of over a dollar per pound. Demand for industrial commodities declines during recessions and the copper market clearly reflects that concern. We could see price gains as industrial countries try to take advantage of the price decline and start to accumulate copper for the expected eventual recovery. We do not see any economic recovery either internationally or domestically and would avoid positions at this time. Our long term bearish view was a great benefit to our readers. I hope they took advantage of our recommendation to short copper at over $4.00 per pound.
Next page: What's up with gold?
Precious Metals: December gold closed at $1,635.80 per ounce on Friday, down $17.40 on pre weekend short covering even as it benefited from a two day recovery after recent losses. Commodities in general benefited initially from the U.S. jobs data until the reality of a potential impact of the European debt crisis gained momentum. We remain sidelined in gold. December closed at $30.90 per ounce, down $1.01 but managed a 3% gain for the week. We like silver from here on the basis that technicals remain favorable and fundamental considerations modified after its recent decline from the highs. Use stop protection. January platinum closed at $1,495.10, down $13 while December palladium lost 9.05 to close at $589.75. General concern over the European debt crisis and the downgrades of debt for Italy and Spain as well as concern over the possibility of a Belgium downgrade also weighed on prices as well as the dollar strength in which they are denominated.
Grains and Oilseeds: December corn closed at $6.00 per bushel, down 5 1/2c adding to previous losses tied to the potential decline in demand prompted by the global economic recession and supply gains. Weak energy products also a factor for corn. December wheat closed at $6.07 ½ per bushel, down 8 1/2c against the dollar and based on recent USDA reports. November soybeans lost 5 1/2c to $11.58 ¼ per bushel tied also to supplies and reduced demand. We continue to favor soybeans and corn but would avoid adding to long positions for the present time.
Meats: December cattle closed at $1.2185 per pound, down 55 points on lower cash prices and against the strong dollar. December hogs closed at 89.4c per pound, up 1.75c tied to spread trades with shortcovering in the nearby against sales in the forwards. We are on the sidelines but holding long cattle positions expecting possible technical shortcovering.
Coffee, Cocoa and Sugar: December coffee closed at $2.2545 per pound, down 8.95c tied to the record crops from Brazil and Vietnam. We favor the sidelines in coffee but could see further downward pressure from supplies. December cocoa closed at $2635 per tonne, down $25 but we could see buying early in the week tied to potential weather delays in the Nigerian harvest. We would buy a few December cocoa contracts but with stop protection. We see upside resistance around $2780-2800. Support at $2450-75.
March sugar closed at 25.25c per pound, up 61 points on shortcovering. No other information available.
Cotton: December cotton closed at $1.0198, down 75 points on continued overall weakness tied to demand concerns and the ongoing global slowdown. We could see short covering and would hold any long positions.
John L. Caiazzo