The influence of the European debt crisis on global markets was painfully apparent this past week with markets gyrating dramatically. On Thursday the selling pressure on precious metals and equities saw the Dow Jones Industrial losing over 200 points. On Friday, after the Euro partners announced the closer fiscal ties and an inter-governmental accord, the Dow regained the 200 points and gold rallied.
We could see further wide price swings this coming week because our opinion of this entire fiasco is that the so-called accord will fail in some way or another. The disparity between the funds necessary to resolve all countries debt crises and the availability of the IMF and ECB funds to do so is too wide a range to mitigate. The protests in the streets of some countries could easily dissuade some individual governments to re-think their austerity programs. That would effect any debt relief should a particular government retracts its austerity program offer. Our comments will therefore once again be tempered.
Interest Rates: March Treasury bonds closed at 14105, down 1 14/32nds as money moved back to equities on Friday after the sharp selloff on Thursday which prompted the rally in treasures. The European agreement for closer fiscal union removed the safe haven attraction to U.S. Treasuries. Another factor was the consumer confidence index rising and economic reports showing the U.S. economic recovery gaining momentum. We continue to view treasuries as a trading affair.
Stock Indices: The Dow Jones industrials closed at 12184.26, up 186.56 on Friday after losing 200 points on Thursday. Reports of the European leaders agreeing to closer fiscal ties along with the U.S. consumer confidence hitting a 6 month high prompted the heavy shortcovering and new buying. Investors are being "whipsawed" by the wide price swings and we would continue to recommend implementation of hedging strategies. For the week the Dow managed a gain of 1.4%. The S&P 500 closed at 1255.19, up 20.84, and gained 0.9% for the week. The tech heavy Nasdaq closed at 2646.95, up 50.47 points and for the week gained 0.8%. The equity markets globally remain extremely fragile and vulnerable to economic data as well as European debt crisis news. We remain overall negative on both the European and U.S. economies and for any resolution of the current international debt crisis.
Currencies: The March U.S. dollar index closed at 7914.5, down 24.9 points against most currencies as reports emanated from Europe of an agreement to stem the debt crisis of a number of Euro Zone countries. The March Euro closed at 13381, up 37 points, the Swiss Franc gaining 32 points to 10840, the March Yen 26 points to 12931, the March British Pound 19 points to 15647, the March Canadian dollar 21 points to 9798 and the Australian dollar 47 points to 10107. We do not believe a resolution based on the availability of funds to meet the requirements of the debt crisis will succeed and we would stay with the dollar.
Energies: January crude oil closed at $99.41 per barrel, up $1.07, after trading as low as $97.36 on statements by Mario Drahi, the new head of the European Central Bank stating that "bond buying talk was naïve". The reluctance of Great Britain to get involved with any agreement was also an early negative. The market later ignored those statements and any agreement was construed as positive for growth and subsequently for energy prices. We prefer the sidelines but with an eye to the short side for crude. We do not believe an "economic recovery" is possible given the Euro crisis as well as the U.S. labor situation. The positive U.S. consumer confidence index was a surprise to us and we cannot conceive of the American public being "confident" with so many out of work, and the burgeoning mortgage and credit problems. Indications of a "spending" increase during this holiday season can only be attributed to increasing credit card debt. A condition that will "correct" itself when the bills arrive in January, in our opinion.
Copper: March copper closed at $3.57 per pound, up 7c tied to the European leaders agreement to increase the rescue fund and tighten budgetary rules for the countries requirement assistance. We remain bearish for copper but would only start to buy puts on any further price gains tied to the Euro reports.
Precious Metals: February gold closed at $1,716.80 per ounce, up $3.40 but for the week gold lost 2%. Prices moved back and forth and in league with reports from European leaders. We do not feel there will be a resolution to the debt crisis and for that reason would avoid positions in precious metals. The usual criteria for gold purchases, anxiety, geopolitical concerns, and inflation do not appear to be effecting prices as they normally should and for that reason we either look for stagnant performance or even negative price action. March silver closed at $32.25 per ounce, up 71c but for the week lost 1.3%. January platinum gained $21.40 on Friday to close at $1,515.80 per ounce but lost 2.1% for the week. March palladium closed at $686.50, per ounce, up $11.20 and managed a gain of 6.3% for the week. Our previous suggestion for a spread of short platinum/long palladium remains intact.
Next page: Grain, meat and softs report
Grains and Oilseeds: Soybeans and wheat fell to the lowest prices in over a year with March soybeans losing 25 3/4c on Friday to $11.16 ½ per bushel and March wheat lost a penny to $5.96 per bushel, The U.S. government reported global crop inventories would be larger than expected. This may provide an opportunity to buy soybeans but with current positions already on, would wait for the "correction" before jumping back in after being stopped out. March corn closed at $5.94 ¼ per bushel, down 6c and for the year as lost 5.5%. We would refrain from adding any new positions for now.
Meats: February cattle closed at $1.1845 per pound, down 11.50c and the lowest in around 5 weeks tied to reports that U.S. meatpackers would reduce purchases as demand for beef slowed. We still like the long side of cattle and would only add to positions on another break in prices. Technical support around $1.15 should hold. February lean hogs closed at 86.425c per pound, down .825c and down 3.1% for the week. Hog prices remain up 8.4% for the year however. We do not favor positions in hogs after having preferred the short side in the recent past.
Coffee, Sugar and Cocoa: March coffee closed at $2.2710 per pound, down 1.55c on profittaking after recent strength tied to supplies and weather concerns in the South American growing areas. We prefer the sidelines. March cocoa closed at $2068 per tonne, down $63 on reports of supply increases in Ivory Coast, the world’s biggest producer of Cocoa. We prefer the sidelines. March sugar closed at 23.57c per pound, down 56 points on profittakinhg after recent gains. The reported increase in supplies and China’s slowing economy prompted the selling. We continue to prefer the short side of sugar but would use buy stops on any breakout basis the March contract through resistance at 25c.
Cotton: March cotton closed at 90.43c per pound and for the week lost 1.5%. We continue to favor the short side of cotton but at current price levels would institute buy stops just over 92c per pound. Follow the market lower with trailing stops.
John L. Caiazzo