Greek debt crisis ripples through markets

Currencies: The June U.S. dollar index rallied on Friday on shortcovering and new buying after the euro zone finance ministers rejected the latest offer by Greece for austerity programs. After recent losses tied to the possibility of the proposed bailout, Fridays refusal to grant the bailout prompted the move from other currencies back to the dollar. We continue to favor the long side of the dollar on the basis that the austerity programs demanded by the euro ministers may be too excessive for Greece to comply with. The Greek people reject the demands and are protesting the cuts in pensions, salaries and jobs. The June Euro closed at $1.3178, down 1.17c, The June Swiss Franc lost 72 points to $1.0919. The June British Pound lost 87 points to $1.5722, the Canadian 75 points to 9949, and the Australian dollar 1.24c to $1.0514. The June Japanese yen managed a gain of 13 points to 12906. Stay with the dollar or buy puts on the Euro.

Energies: May crude oil closed at $99.63 per barrel, down $1.24 tied to the strong dollar but moreso to reports that China imports declined by 15.3% in January. China is the world’s second largest consumer of energy. Additionally China’s deficit grew from $16.5 billion in December to $27.3 billion in January. A reduction in demand could prompt even further price declines. We have been suggesting our preference for the short side of crude oil and now suggest prices could decline to our former goal, which had been achieved, of $75-80 per barrel. May natural gas gained 32 points to $2.795 per MBTU while May heating oil lost 2.23c to $3.1359 per gallon and Unleaded gasoline lost 2.66c to close at $3.1107 per gallon. Our preference remains the short side of crude.

Copper: March copper closed at $3.862 per pound, down 11.65c tied to the Chinese reports of declines in imports. China is a large importer of industrial metals such as copper that have been used for electronics but moreso for construction projects. We have long suggested the short side of copper based on our own expectation that recessionary trends exist globally and demand for copper should decline. Copper inventories at the Shanghai Futures Exchange increased to approximately 180,000 tons, the highers level since mid 2010. Sell copper or buy put options.

Precious Metals: April gold closed at $1,725.30 an ounce, down $15.90 and for the week lost 0.9%. The strong U.S. dollar and doubts that the European finance ministers will approve financial aid without addition austerity by Greece. A strike against those austerity measures by the Greek people and protests in Athens taking place in the streets as Greeks clashed with police. A vote is expected on Sunday. We doubt if the two sides can get together and would stand aside on precious metals for now. The CME cut margin requirements on Friday which ordinarily would prompt traders to add to long positions. Not the case on Friday. March silver closed at $33.60 per ounce, down 31c and for the week lost 0.4%. April platinum closed at $1,659.80 per ounce, down $7.80 while March palladium lost $8.25 to $703.05 per ounce. We prefer the sidelines until further fundamentals emerge from Europe.

Next page: Ags and softs

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