An array of news has all but overlooked the Federal Reserve statements of continued slow growth and the indication of a slowing Chinese economy. China has been the new global buyer, taking the title away from the United States where an ongoing labor situation has precluded new consumer buying, a stalwart of the past.
According to the U.S. government, 200,000 workers were added to U.S. nonfarm payrolls in December and the unemployment rate dropped to 8.5%, an almost three year low. Unfortunately, there is a clear disparity between 200,000 jobs increased monthly against a weekly first time unemployment figure of 270,000 or over one million jobs lost per month, assuming each person applying for unemployment lost one job.
Another factor in the mix is the ongoing European debt crisis which remains unchecked as yet. Concern over a possible credit downgrade for Hungary also adds to global concerns. Also of concern was the Iranian threat against U.S. warships in the Gulf, but a strange turn of events took place the other day. An Iranian fishing boat asked for help against 15 pirates who had held the crew captive for over a month with no response from Iran. A U.S. warship came to their rescue, captured the pirates and freed the ship. We are awaiting any kind of response from Iran considering the gratitude of the captain and crew of the Iranian fishing boat.
We remain concerned that various geopolitical events as well as economic conditions globally and the ongoing European debt crisis will eventually create a global recession. We would recommend the contraction of investment activity for the time being. Now for some actual information.
Interest Rates: March Treasury bonds closed at 14300 up 23/32nds as money once again made the trip between equities and the relative safety of the U.S. treasury market. While the added U.S. jobs should have prompted higher yields and lower prices as good economic news usually does, the overall global economic picture remains "gloomy" at best. Continued talk of a global recession prompted by the European debt crisis weighed heavily on global equity markets and prompted the move to both treasuries and the U.S. dollar. We continue to view the bond market as a trading affair but any further price gains could be an opportunity to either sell calls or buy puts. My clients will be informed as to timing.
Stock Indices: The Dow Jones Industrials closed at 12,359.92, down 55.78 but managed a weekly gain of 1.2%. The S&P 500 closed at 1,277.81, down 3.25 points but gained 1.6% for the week. The tech heavy Nasdaq closed at 2,674.22, up 4.36 points and gained 2.7% for the week. The rally earlier in the holiday shortened week was prompted by the ADP employment number showing an expected gain of over 300,000 jobs but the actual figure came in on Friday at 200,000 jobs gained and an 8.5% unemployment rate. As I have indicated in the past, that unemployment rate if the "under-employed" are factored in should be closer to 19%. We remain wary of any "good" economic data while economic conditions globally are in flux. We must once again deplore investors with large equity positions to implement hedging strategies or contact us for strategies specific to their individual positions.
Currencies: The March U.S. dollar index closed at 8160.5, up 35.5 points against most currencies except the Japanese yen, which had earlier been under pressure. Losses included the March Euro 67 points to 12725, the Swiss Franc 19 points to 10483, the British pound 57 points to 15418, the Canadian dollar 81 points to 9713, and the Australian dollar 40 points to 10145. The Japanese yen managed a gain of 33 points to close at 13003. The dollar benefited from the better U.S. economic and jobs data while other currencies suffered under the continued "weight" of the European debt crisis and talk of a Chinese economic contraction. We continue to favor the short side of the Euro.
Energies: February crude oil closed at $101.56 per barrel, down 25c but for the week rose 2.8% and a total gain for 2011 of 8.2%. During the session we saw prices top out at $1.0280 per barrel but profittaking toward the close brought prices back to closing levels. The positively construed U.S. labor report helped crude oil as the U.S. is one of the major users of energy products. We continue to believe prices are too high for a consistent economic recovery and would buy put options on crude.
Copper: March copper closed at $3.44 per pound, up a penny, unchanged for the week but for the entire year of 2011 lost 23% of its price. The reduced demand from the construction industry along the overall "gloom" associated with the Eurozone debt crisis prompted much of the decline in demand. We prefer the sidelines in copper since we see no proof of a sustained economic recovery in the U.S. or abroad.
Precious Metals: February gold closed at $1,617.50, down $2.60 per ounce and up 3.2% for the week. For the entire year 2011 gold gained 10%. March silver closed at $28.725 per ounce, down 57.1c but for the week gained 2.7%. April platinum closed at $1,408.20 per ounce, down $9.80 while March palladium lost $30.40 per ounce to close at $614. The Platinum loss was 0.7% while palladium lost 4.7%. For the week Platinum managed a gain of 0.2% while palladium, after recent strength against platinum lost 6.4% for the week. For the year Platinum lost 21% while palladium lost 18%. We favor the sidelines but our preference is palladium over platinum if only for the risk factor based on overall price.
Grains and Oilseeds: March corn closed at $6.43 ½ per bushel, unchanged on the day. Potential damage to some South American crops due to drier weather forecast prompted some short covering from the session lows of 640 ¼ but down from the high of 649 ½ posted earlier. We like corn but would only buy with stop protection. March wheat closed at 624 ¾ down 4 1/2c after trading earlier at the days highs of 636 ¾ but the strong dollar is keep prices for dollar denominated commodities in check. An Egypt tender for optional origin wheat prompted early gains but profittaking and the dollar caused price declines to closing levels. We prefer the sidelines in wheat based on our assessment of a technically overbought condition. March soybeans closed at 1196 ½ down 12 1/2c after trading as high as 1219 ¾ early in the session. Various factors such as the Eurozone ongoing debt crisis, beneficial rains expected in Argentina, the strong dollar, and possible demand reduction from China all impacted prices. We were stopped out of soybeans based on our expectation and would probably look to get back on the long side on any further deterioration or change in fundamentals primarily weather.
Next page: Meat and softs report
Meats: February cattle closed at $1.2040 per pound down 55 points on the strong dollar and reduced demand concerns tied to global economies. We still like cattle but would use stop protection on any new purchases. Hold current positions and stops. Herd reductions through increased slaughter could bring support later. February hogs closed at 84c per pound up 1.5c on shortcovering after recent selling. We prefer the sidelines in hogs.
Coffee, Sugar and Cocoa: March coffee closed at $2.2160 per pound, up 2.05c on concerns that India may reduce exports according to coffee industry group, Coffee Exporters Association of India. Another factor in the buying was concern over Colombia coffee production. We like coffee and would add to long positions or buy calls around current levels. March cocoa closed at $2020 per tonne down $8 on continued long liquidation. We remain positive for cocoa after prices had declined 31% last year and we anticipate some fundamental changes from Ivory Coast or Ghana due to low prices. We could see reduced exports as farmers hold back deliveries. The strong dollar had little impact on prices and demand for chocolate, reduced by economic conditions in Europe and the U.S. caused last years sharp price declines. Any buying, as with other softs, should include stop protection. We suggest call purchases rather than outrights for retail clients. March sugar closed at 23.29c per pound, up 16 points. Shortcovering after recent weakness prompted by the strengthening dollar a factor. We like sugar for a move over 25c per pound basis the March contract. Use stop protection on outrights. Go further out for call purchases.
Cotton: March cotton closed at 95.86c per pound on Friday up 1.12c on shortcovering as technical conditions improved after recent heavy long liquidation by commodity funds. Concern over crop conditions in India and the USDA cutting its forecast for Indian cotton production also a factor in the formation of a base for cotton prices. We continue to favor the long side of cotton for a move back over a dollar to the $1.10-1.15 level.
John L. Caiazzo