Fiscal cliff stand-off wild card for markets

Currencies: The March U.S. dollar index closed at 8034.5, down 5.9 points against the basket of European currencies but fared better against the Japanese yen which closed at 0.12145, down 45 points. The March Euro closed at $1.3019, up 30 points with the Swiss Franc gaining 8 points to close at $1.0803. Others were mixed with the British Pound losing 17 points to $1.6017, the Canadian dollar losing 7 ticks to $1.0047, and the Australian dollar gaining 8 points to $1.0354. The inability of the U.S. government to resolve its budgetary problem continues to play havoc in the international market place. We continue to favor the dollar but would hold current positions and not add pending a determination on the U.S. budget and tax situation.

Energies: January crude oil closed at $88.91 per barrel, up 84¢ as traders kept a watchful eye on Washington as well as concern over supply risk in the Middle East what with ongoing tensions between Israel and the Palestinians. The UN announced its acceptance of a Palestinian state and that did not bode well with Israel as Palestine is now accepted with the UN as a State. We remain concerned that the fragile peace between Israel and the Muslim Brotherhood which controls Egypt and to some extent Gaza may not be permanent and could erupt in War in the all-important energy area of the Middle East. Our overall opinion remains negative for crude based on supply/demand and the recession in Europe but could change at any time. Our clients will be informed on a timely basis of any change in any of our market opinions.

Copper: March copper closed at $3.6425 on Friday, up 3.7¢ and its highest price since Oct. 22. Reports of improved growth prospects in China, the world’s largest user of industrial metals prompted heavy short covering and new speculative buying. We had been bearish for some time based on our overall negativity towards global economies as well as the contraction of industrial activity in China, but that situation appears to have changed so we are on the sidelines for now. Aside from the China situation the U.S. industrial complex could be affected by any decision on the U.S. budget which could have a material effect on demand for industrial metals. Any failure to come to an agreement to extend the Bush tax cuts could impact corporate and small business expansion and hiring plans.

Precious Metals: February gold closed at $1,712.70 per ounce, down $16.80 or fully 1% on Friday as stalled negotiations in Washington on the so called fiscal cliff continued to concern investors. We prefer the sidelines since the resulting compromise, if achieved before the year-end deadline, could materially affect global economies and investor psychology. March silver closed at $33.28 per ounce, down $1.15 or 3.4%. January platinum closed at $1,604.60 per ounce, down $14.90 while March palladium closed at $688.20 per ounce, up 75¢. Our favored spread of short platinum long palladium reasserted itself as platinum lost 0.9% while palladium gained 0.1%. Otherwise we prefer the sidelines awaiting any results from the Washington budgetary stand-off.

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