Friday the 13th lived up to its reputation for equity investors. For the rest of us, the week provided real concerns related to the ongoing Eurozone crisis with Spain the latest victim. The additional funds needed to avoid default is growing with the expectation that at some point the prosperous nations will have to cut off the funding. I believe they should let the cards fall where they may, so that a recovery can begin in earnest. With new countries added to the crisis list, we view any bailouts as throwing money down a well.
The United States has its own problems with the mortgage and loan defaults, and the postponing of the inevitable. Mortgage foreclosures that are being artificially delayed by banks not wanting to move the receivables from the asset column to the other side will only exacerbate the problem. Let gravity take its course to form a base from which to effect a true economic recovery. The U.S. administration's joy at the creation of 120,000 jobs in a month does not take into consideration the weekly unemployment figure of more than 350,000, each of course representing a job lost.
Now for some actual information…
Interest Rates: June Treasury bonds closed at 141 14/32nds as the relative safety of the U.S. treasury market became the "escape valve" for equity investors. The ongoing European debt crisis along with the weaker than expected U.S. economic growth data with the meager 120,000 jobs "created". As I have stated in prior commentaries and the overview, the job "creation" of 120,000 jobs in a month does not take into consideration the less publicized weekly loss of over 350,000 jobs by virtue of the first time unemployment figure. We continue to expect bonds to remain in a trading range with the high of 143-144 and the low of our anticipated range of 135-136. We have strategies for taking advantage of that expected price range. Opening an account under my personal management is a simple matter. Contact me for information.
Stock Indices: The Dow Jones industrials closed at 12849.59, down 136.99 and for the week lost 1.61% with investors scrambling to adjust positions with much of the money moving to the relative safety of the U.S. treasury market. The S&P 500 closed at 1370.26, down 17.31 for a daily loss of 1.25% and a weekly loss of 1.99%. The tech heavy Nasdaq closed at 3011.33, down 44.22 losing 1.45% on Friday and for the week lost 2.25%. We have been warning that the U.S. Administrations "glowing" reports and "assessment" of an economic recovery has been "irrational exuberance" at best and an attempt to allay the fears of the investing public. Our continued admonition to implement hedging strategies has apparently gone unheeded as emails from a few of our readers are requesting specific advice as to how to protect against further market erosion. I can attempt to manage their risk but only if they open an account. The "free" market information is ending soon and individuals will require subscriptions. Our commentary is issued on Sunday evening. For information and sentiment changes occurring during the week, a subscription or an account is required.
Currencies: The June U.S. dollar index closed at 8005.5 up 60.6 points as the ongoing Euro debt crisis along with geopolitical concerns such as the North Korean and Iran situations are prompting safe havens. Most currencies lost on Friday. The June Euro lost 117 points to $1.3083, the Swiss Franc 110 points to $1.0882, the Japanese yen 48 points to 1.2336, the British Pound 1.19c to $1.5846, the Canadian dollar 39 points to $1.0003 and the Australian dollar 57 points to $1.0311. Stay with the dollar
Energies: May crude oil closed at $102.84 per barrel, down 80c on Friday tied to the lower than expected Chinese economic data. China is one of the world’s largest consumer of crude oil and certain industrial metals and any weakness in their economic could reduce demand and consequently result in lower prices. May heating oil closed at $3.1793 per gallon, up 1.3c but unleaded gasoline lost 76 points to close at $3.3491 per gallon. We prefer the sidelines but our expectation for crude remains unchanged with our interim goal of $80-85 per barrel. Retail clients can hold or add to put option positions.
Copper: May copper closed down 10c or 2.5% on Friday to close at $3.61 per pound. Concern that China, one of the largest user of industrial metals, would reduce demand as their first quarter economic growth slowed substantially. Their economic growth fell to an annualized 8.1% from the 2011 4th quarter 8.9% and that decline could continue through the second quarter of 2012. Additionally concern over the continued European financial crisis was increased as yields on Spanish bonds moved higher indicating that Spain would have to pay higher interest in order to float their bonds. We continue to favor the short side of copper in as much as our expectation for renewed recessionary concerns permeates the industrialized countries. Hold put positions and add on any rallies.
Precious Metals: June gold closed at $1,660.20 per ounce on Friday, down $20.40 while May silver lost $1.135 per ounce to close at $31.39. Concern over the health of the global economy and dollar strength prompted the selling in precious metals. July platinum lost $18.10 per ounce to $1,587.90 while June palladium lost $5.90 to close at $647.20 per ounce. The Chinese growth reduction, the U.S. dollar strength, the lower U.S. yields prompted by the buying of treasuries and general economic malaise reducing demand for the traditional "risk hedge" positions. We prefer the sidelines but with the continued exception of spread trades i.e. long silver/short gold, long palladium/short platinum.
Next page: Ag and softs report
Grains and Oilseeds: May corn closed at $6.29 ¼ per bushel, down 8 1/4c mostly tied to profittaking after recent strength from export reports and the strong dollar. We prefer the sidelines in corn but with expected heavy tornado activity in the mid-west, we could see some rice gains. May wheat closed at $6.23 ½ per bushel, down 15 3/4c tied to the strong dollar and concern of reduced demand from China due to their economic report. May soybeans closed at $14.36 ¾ per bushel down 4 1/4c on profittaking after recent strength tied to export data and the strong dollar. We continue to favor the long side of soybeans.
Meats: June cattle closed at $1.1607 per pound, down 1.08c against the strong dollar and possible demand decline tied to the lower than expected Chinese economic growth. We had favored the long side of cattle with our goal of $1.25 per pound, which had been achieved. We are awaiting further fundamentals before considering adding to any open positions but technically we may have seen the bottom. June hogs closed at 90.22c per pound, down 3c on the strong dollar after its recent shortcovering rally against the longer term downtrend from $1.00 per pound. We prefer the sidelines in hogs.
Coffee, Cocoa and Sugar: May coffee closed at $1.7920 per pound, down 3.7c on continued price basing after the recent sharp decline. We like the long side of coffee from here. May cocoa closed at $2248 per tonne, up $88 on lower than expected European cocoa grind data which could portend reduced supplies going forward. We continue to favor the long side of cocoa with our interim goal around $2,450-$2,500 per tonne. May sugar closed at 23.37c per pound, down 85 points on continued selling pressure after recent highs but also against the strong U.S. dollar. We had preferred the long side of sugar but stops were elected and we are now looking for a basing action from which to put on long call positions. We continue to feel sugar prices could base here on reports of reduced Brazilian sugar cane production going forward.
Cotton: July cotton closed at 89.73c per pound, down 7 ticks mostly tied to the dollar strength. We continue to favor the long side of cotton tied to Indian export concerns. We would add to long positions on any further price declines with our interim objective of $1.00-$1.10 per pound.