All eyes will be focused on the E.U. meetings starting on Sunday, Oct. 23, as they begin deliberations as to the best way to save the euro by developing a Greek debt crisis plan. According to reports, the Greek economy has "deteriorated so severely in the past three months that international lenders would have to find 252 billion euros in bail out loans" or force bondholders to accept drastic cuts in their recorded debts. The meetings beginning Sunday in Brussels and extending through the week are hopefully to avoid a Greek default and resulting expansion of a sovereign debt crisis.
Our feeling has stated in numerous commentaries was that a single currency for 17 countries each with their own economy and GDP made no sense. I would be surprised if Sarkozy of France and Merkel of Germany, assuming they come to an agreement between themselves as to what form the bailout would take, would be able to convince other countries to provide the funds needed from them to effect a bailout. The critical element would be the time element of how long it would take for Greece, through its austerity programs, to repay those loans.
With the protests in Greece against those programs, it would certainly be difficult for the Greek government to persuade the public to agree to the severe austerity cuts demanded. This weeks market activity will, unfortunately, be influenced by those meetings and our recommendations will be tempered bearing in mind the impact of any decision on markets. Now for some actual information...
Interest Rates: December Treasury bonds closed at 13816, down 16 points as stocks rally and money moved to equities from the safe haven of treasuries. A lack of new economic data or from Europe in front of this weekends meeting in Brussels Belgium prompted long liquidation of treasuries. Yields rose inversely to prices on fixed coupon treasuries. We could see further price declines if U.S. economic data and earnings improve. This weeks earnings reports along with the EU meetings in Brussels could provide the impetus to market action. We would await information before taking on new positions.
Stock Indices: The Dow Jones industrials closed at 11808.79, up 267.01 or 2.31% on Friday and gained 1.4% for the week on shortcovering and new buying in front of what is expected to be fruitful meetings on the Greek debt crisis. We however, doubt any change in the crisis condition of the European debt and warn against "premature enthusiasm" and reiterate our admonition to implement hedging strategies. The S&P 500 closed at 1238.25, up 22.86, or 1.88% and posted a 1.1% weekly gain. The Nasdaq closed at 2638.46 on Friday, up 38l84 or 1.49% and for the week gained 1.1%. The choppy wide swings could be repeated this coming week. Some major earnings reports and results of the Brussels meetings could create wild market conditions. We remain extremely cautious but negative towards equities.
Currencies: The December dollar index closed at 7850, down 73.6 on expectations that the EU meetings in Brussels will bear fruit in resolving the Euro Debt crisis. We doubt it and would current put positions on the Euro. The other currencies gaining against the dollar were the Swiss Franc 125 points to 11316, the Euro 96 points to 13859, and the British pound 152 points to 15929. The December Japanese yen gained 127 points to 13150, the Canadian dollar 5 points to 9893, and the Australian dollar 81 points to 10265. We would avoid any new positions pending the completion of the Brussels conference.
Energies: December crude oil closed at $87.40 per barrel, up $1.33 on a pre-weekend correction after a two day selloff and in conjunction with the equity market rally where any expectation of an economic recovery could prompt increased demand for energy products. We remain negative for crude oil on the basis that we do not see any economic recovery and feel the end of the Qaddafi government could return oil products to normalcy.
Copper: December copper closed at $3.22 per pound on light shortcovering in conjunction with the gain in equities. Improvement in equities usually translates to increased demand for copper but the major influence on copper prices and demand has been China and any change in their attitude towards industrial development affects copper. When China recently indicated its reduction in growth to stave off inflation, copper prices collapsed, something we had projected nearly a year ago. Stay out for now since our goal has been achieved. Any change now could prompt wide price swings in copper and not conducive to our client goals.
Next page: We look at precious metals
Precious Metals: December gold closed at $1,636.10 per ounce, up $23.20 on shortcovering and the dollar weakness. Expectations of a resolution to the current European debt crisis prompted the rally in the Euro and consequent decline in the dollar, a relative safe haven with Treasuries. We do not expect a resolution to the Euro crisis but would await the results of the Brussels meetings before taking any position in precious metals. For the week gold lost $46.90 or 2.8% and we are not ready to make any recommendations to our clients. December silver closed at $31.19 per ounce, up 91c following gold and against the weak dollar. January platinum gained $18.80 to close at $1,509.20 per ounce with December palladium gaining $33.85 per ounce to close at $618.25 per ounce. We continue to favor the long palladium, short platinum spread but otherwise stay out for now. The platinum gain on Friday was 1.3% while the gain in palladium registered 5.8%.
Grains and Oilseeds: December corn closed at $6.49 ¼ per bushel continuing is slide after recent negative USDA reports. We are holding current long call positions. December wheat closed at 632 per bushel, up 1 ¼ per bushel on light buying. We prefer the sidelines in wheat. November soybeans closed at $12.12 ¼ per bushel, down 12 3/4c with the March contract losing 8 1/4c to close at $12.29 ½ per bushel.. We continue to favor the long side of soybeans.
Meats: December cattle closed at $21.2215 per pound, up 35 points against the weak dollar and on shortcovering and a lack of any new fundamentals. Growing demand and fewer pounds of beef expected for next year could prompt new buying of forwards.We continue to favor the long side of cattle. December hogs closed at 89.65c per pound, down 32.5 points on a correction after recent strength. We have no opinion now on hogs but could expect further buying early in the week.
Coffee, Sugar and Cocoa: December coffee closed at $2.4545, up 13.8c on renewed talk of reduced production and supplies. We could see higher prices but any buying should be accompanied with stop protection. December cocoa closed at $2560 per tonne, down $2.00 on long liquidation and a lack of fresh fundamentals. Hold any long positions. March sugar closed at 26.48c per pound down 32 points in sideways trading. We prefer the sidelines in sugar but any short positions should be held.
Cotton: December cotton closed at 97.10c per pound up 24 points but remains under pressure from the USDA recent report. At current prices after being stopped out under $1.00 we would look to buy calls.