The market driving issues this past week have been on-again, off-again Greek bailout, where a solution appears to have been worked out; the ramifications of additional Eurozone country debt payment problems; and concern over the Iranian situation. Iran maintains its nuclear programs are for peaceful applications whereas some evidence has emerged leading to the conviction that their ambitions include weaponry. Iran refused to let examiners into the facilities and that prompted fears that Israel may attack the facility. That, according to Iran, would prompt military action against Israel and the U.S. and closure of the Hormuz straits through which much of the world’s oil moves.
This coming week will also provide us with information from Japan. There will also be important data from the Asia Pacific region, Europe, and the United States. European unemployment, retail sales and prices, both consumer and producer, will be released. In the U.S., economic data will determine market action as well. We will have to wait and see what effect the plethora of data provides us with in the way of market decisions. Now for some actual information, but with the ongoing market moving events still in play comments will once again be tempered...
Interest Rates: June treasury bonds closed at 14118, up 10/32nds tied to positive U.S. economic data, the Thursday unemployment figure, and a lack of inflationary concerns even against rising energy costs. We continue to view treasury bonds as a trading affair but option strategies could work very well. Our clients have been made aware of specific programs.
Stock Indices: The Dow Jones industrials closed at 12982.95, down 1.74 and for the week still managed a gain of 1.42%. The S&P 500 closed at 1365.74, up 2.28 and for the week gained 1.72%. The Nasdaq closed at 2963.75, up 6.77 and for the week gained 2.06%. Positive U.S. economic data, the resolution of the Greek debt crisis (for now) and the sharp Euro currency gains against the weak dollar all provided the impetus for the equity market rally. However, with the ongoing issues of Iran, the possibility that Greece may not be able to introduce the severe austerity programs on its people, and the ongoing high level of U.S. unemployment could make the equity markets extremely vulnerable. We once against suggest hedging strategies to protect against the August 2011 type meltdown. Holders of large equity positions can receive our recommendations appropriate to their specific requirements.
Currencies: The June U.S. dollar index closed at 7873.5, down 54.5 tied to the agreement formulated for a second international bailout for Greece. That prompted a sharp rally in the Euro against most counterparts with the Euro gaining 1.24c to $1.3467. Other gains against the dollar were 1.15c for the Swiss Franc closing at $1.1193, 1.7c for the British pound which closed at $1.5872, and the Australian dollar .19 closing at $1.057. The Japanese yen lost 138 points to close at 12364 basis the June contract and the Canadian dollar lost 13 points to close at 99.72c. Our feeling is that the Greek bailout may only cause further problems for the "Troika" of the ECB, the IMF, and the European commission as the debt problems with other Eurozone countries emerges. We continue to favor the long side of the dollar. Concern over the Iranian cutoff of oil supplies to Europe could also provide support for the dollar.
Energies: April crude oil closed at $109.77 per barrel, up $1.94. Even the question raised of a release by the U.S. of strategic oil reserves would only have a short term effect on supply, probably only two months. Prices gained on positive economic data, the dismissal by Iran of UN atomic inspectors leading to concern that the Iranian nuclear program is suspect and could provoke an attach on their facilities by Israel. That would lead Iran to "punish" the West by closing off the straits of Hormuz. All these factors prompted wide price swings in commodities and equities. While we continue to feel price levels for crude over $1.00 could cause economic problems, we would only hold current put positions on crude and not add at this time.
Copper: March copper closed at $3.863 per pound on Friday, up 5.7c on improved U.S. economic data. The U.S. is the world’s largest consumer of copper after China. The report by the National Association of Realtors Wednesday that sales of previously occupied homes rose to its highest level since May of 2010 prompted ideas that new home building would be improved increasing the demand for copper. We disagree since there are at least 3 million homes in default or foreclosure and those homes, when offered for sale would pressure prices even further. While that condition may provide bargains for home buyers, it will take at least 2-3 years for that kind of inventory to dissipate. Hold copper put positions and add if copper prices move to the $3.95-$4.00 level.
Precious Metals: April gold closed at $1,77.50 per ounce, down $11.30 on profittaking but managed a gain for the week of 2.9%. The weak dollar tied to the Euro strength on the resolution of the Greek debt crisis the main feature. Also prompting the move to gold was concern that Israel may attack Iran’s nuclear facilities prompting the closure of the Straits of Hormuz by Iran and the intervention by the U.S. to prevent it thereby escalating into war. May silver closed at $35.42 per ounce on Friday, down 0.6% but for the week was up 6.4%. April platinum closed at $1,715.10 per ounce, down $7.50 while April palladium closed at $711.30 per ounce, down $7.60 but for the week gained 3.3%. We favor the sidelines for now due to the potential for extreme price swings tied to geopolitical events. Otherwise we prefer silver to gold for those who insist on buying metals but caution is the watchword tied to the technically overbought condition for both sold and silver.
Next page: Ags and softs
Grains and Oilseeds: May corn closed at $6.44 per bushel, up 1 1/2c on shortcovering in front of the weekend. With corn plantings expected highest since World War II and slowing demand for use in ethanol, prices could come under pressure in the near term. However, our long established policy of not shorting "anything that grows", still applies. Wait for a setback and then take another look. May wheat closed at $6.41 1/4, up 1/4c also tied to bearish USDA forecasts. Stand aside wheat and corn. May soybeans closed at $12.86 ¾ per bushel, up 3 1/4c on reports that record exports could reduce reserves to a three year low. Improved demand from China also a factor in the buying. We continue to favor the long side of soybeans from here.
Meats: April cattle closed at $1.2950 per pound down 17.5 points on profittaking after recent strength tied to shrinking herd sizes. We continue to favor the long side of cattle but bring up your trailing stops. April hogs closed at 89.725c per pound, up 1.25c on shortcovering after recent weakness. Hogs benefitted from record high prices for cattle which may switch some demand from beef to pork. We like the sidelines in pork.
Coffee, Sugar and Cocoa: May coffee closed at $2.0405 per pound, up 2c on tight supplies forecast and the weak dollar. Improved economic data supports demand ideas against supplies. We have liked the long side of coffee and prices could manage further gains. Stay long but raise trailing stop. May cocoa closed at $2,367, per tonne, up $23 tied to the weak dollar. We prefer the sidelines in cocoa. May sugar closed at 25.22c per pound, up 36 points and remains on our favored list. Hold long positions but raise stop protection. The potential for a dollar rally could prompt long liquidation.
Cotton: July cotton closed at 91.35c per pound up 74 points on exports to China and the weak U.S. dollar. However China buying may be ending and that could prompt selling pressure. We have been positive on cotton since the sharp decline from the June 2011 high of $1.17 to the mid December low of 84c but prices appear to have stalled at current prices. We could see further gains to the 93c level but raise the trailing stops in the event of additional negative fundamentals.
John L. Caiazzo