Interest Rates: December Treasury bonds closed at 13813, down 104 as funds moved back to equities. The retail sales increase of 1.1% in September, reported by the U.S. Commerce department after a revised 0.3% gain in August added to the recent strength in equities and the selling of treasuries, the usual "safe haven". We have been negative for treasuries and would hold current put positions but take some profits.
Stock Indices: The Dow Jones industrials closed at 11644.49, up 166.36 points and for the week posted a 4.88% gain. The S&P 500 closed at 1224.58, up 20.92 and for the week gained 5.98%. The Nasdaq closed at 2667.85, up 47.64 or 1.82% for a weekly gain of 7.6%. After the weak August and September, money returned from safe havens to the equity markets on the basis of expectation that the current European debt crisis which had spread globally may be contained as the G20 is meeting over the weekend and promise of "resolution" by Germany and France improved sentiment. We do not believe there can be any resolution since the Greek debt crisis and the suggested austerity programs are not being accepted by their public. Resulting protests in Greece and Italy, sometimes tied to the growing international protests about jobs and financial inequality could disrupt the resolution process. Implement hedging strategies. We expect a reversal of "fortune" and a dramatic selloff in equities.
Currencies: December U.S. dollar index closed at 7686.5, down 41.9 points as the Euro gains on the expected resolution of the European debt crisis. An improvement in the U.S. retail sales picture also impacted the dollar against most currencies. The December Euro closed at 13870, up 95 points, the Swiss Franc gained 56 points to 11209, the Canadian dollar 69 points to 9871, the British Pound 46 points to 15805 and the Australia dollar 138 points to 10258. The Japanese yen, after recent strength closed at 12961, down 61 points. We do not believe there can be a resolution to the Greek debt crisis and protests in the streets against the proposed austerity programs in order to comply with the ECB and IMF demands before receiving debt "bailouts" could impede the process. We remain bearish on the Euro.
Energies: November crude oil closed at $86.80 per barrel, up $2.57 and remains in a wide price range. The U.S. retail sales report provided the impetus for the shortcovering and new buying of energy products. November heating oil gained 8.98c per gallon to close at $3.0612 while Natural gas gained 1.62c to close at $3.693 per MBTU. We continue to favor the short side of crude based on our assumption of declining demand tied to global recessionary trends.
Copper: December copper closed at $3.43 per pound, up 12c or 3.89% tied to the weak dollar and the U.S. retail sales gain. We had been bearish for a long time and recently suggested taking profits from the short sales and long put positions. We are on the sidelines now.
Precious Metals: December gold closed at $1,683 per ounce, up $14.50 on Friday against the weak dollar and the increase in U.S. retail sales. For the week gold managed a gain of 2.9% but still far below its recent high of $1,900. Gold has been under pressure for the past four weeks as money moved between equities and treasuries. We are neutral to bearish on gold. December silver closed at $32.17 per ounce, up 51c. December palladium gained $26.45 per ounce to close at $620.55 and January platinum gained $22.50 to $1,554.90. Our former recommendation of long Palladium short Platinum spread improved with Palladium gaining 4.5% against a 1.5% gain for platinum. We are on the sidelines for now since the risk of wide price swings is not appropriate for our clients.
Next page: What's up with grains?
Grains and Oilseeds: December corn closed at $6.40 per bushel, up 1 3/4c on a correction after recent weakness tied to a bearishly construed USDA report. Chinese buying of Corn, Wheat and Soybeans prompted shortcovering as well. We continue to favor the long side of corn. December wheat closed at $6.22 ¾ per bushel, up 4 3/4c also tied to shortcovering after recent heavy selling and against the weak dollar on Friday. We are on the sidelines in wheat. November soybeans closed at $12.70 per bushel, up 13c on shortcovering after recent heavy selling tied to that negative USDA report. We favor the long side of soybeans but for the March 2012 contract.
Meats: December cattle closed at $1.232 per pound, up 35 points tied to the positive U.S. retail sales figure, expectations for increased demand and expections of reduced supplies with ranchers reducing herd sizes and against the weak U.S. dollar. We continue to favor the long side of cattle. December hogs closed at 90.07 12 c per pound tied to the dollar weakness on an improved CME Lean Hog Index of October 6th. However with hog slaughter up from week ago and year ago levels, we could see renewed selling pressure and remain bearish for hogs.
Coffee, Sugar and Cocoa: December coffee closed at $2.3945 per pound, up 1.8c on increased demand. Brazil is expected to produce a record crop in 2012 but shipments for the past year through September have jumped 11% from a year ago. The Brazilian Association of Coffee Industries forecast domestic xonsumption "may grow more than 4.7%". We look for additional shortcovering and buying in coffee. Coffee prices have. Increased by 28% in the past year. December cocoa closed at $2682 per tonne, up $52 on increased demand expectations and against the U.S. dollar. The U.S. retail sales gain also inspired new buying in cocoa. We could see higher prices but any new buying should be followed with stops. March sugar closed at 27.88c per pound, up 97 points or nearly a whole cent. The expected large surplus was reduced and shortcovering and new buying materialized. We continue to favor the long side of sugar for a possible move to 30-32c per pound basis the March contract.
Cotton: December cotton closed at $1.0194 per pound, up 38 points on shortcovering after recent weakness tied to the U.S. governments increase of its crop forecast. We continue to favor the long side of cotton but would increase stop protection.
John L. Caiazzo