Markets whipsawed by expected and actual data

Copper:

May copper closed at $3.3425 per pound, down 90 points tied to the weak U.S. economic data, concerns over China’s growth, and the reduced exports for one of the largest copper producers, Chile. The port strike in Chile which started March 16th is curtailing Chilean exports by 60%. Even so global demand is not improving as well so our feeling is for still lower prices for copper. We have been bearish for copper for some time and see no reason to change our opinion.

Precious Metals:

June gold closed at $1,579.20 per ounce, up $26.80 on the disappointing U.S. jobs report, the selloff in equities, the U.S. dollar weakness, short-covering after recent sharp declines and the flight to "safety" of risk adverse assets. Gold still managed a loss of 1.2% for the week. We continue to prefer the sidelines. I sold my one ounce gold Eagles at $1,747 and am not buying them back….yet. May silver closed at $27.345 per ounce, up 47.8c for the same reasons as gold. A weakening U.S. economy would prompt the U.S. Federal Reserve to continue to implement QE bond buying, which pushes rates lower and negates dollar attraction. While we favor the dollar against its trading partners we view the global economic condition as weak and void of any inflationary concerns which normally would assist gold and other precious metals. Stay out for now. June palladium closed at $727.85, up $2.40 an ounce while July platinum gained $20.80 per ounce to close at $1,538.60. We are abandoning our long palladium/short platinum spread for now.

Grains and Oilseeds:

May corn closed at $6.28 ¾ per bushel, down 1 1/4c on continued long liquidation even against a weak dollar. The recent USDA report was negative and we see no reason for expending change for now. We prefer the sidelines. May wheat closed at $6.99 ½ per bushel, up 5 1/2c mostly tied to short-covering and the weak dollar, but here again we see no reason to "jump in" at current levels. The last couple of session gains are not enough to move us to the long side. Stay out for now. May soybeans closed at $13.62 per bushel, down another 10c even against the weak dollar. Recent dollar strength has moved demand from the U.S. to Brazil and Argentina and concern over reduced demand from China tied to their "bird flu" issue pressuring prices for soybeans. We prefer the sidelines here as well.

Meats:

June cattle closed at $1.21550, down 80 points after some sporadic cash steer buying tied to packer competition for slaughter inventory. The sharp selloff over the past months that took prices down from $1.33 per pound level made an interim bottom and prompted short-covering and some new buying. We like cattle but would only buy minimally and using stop protection. With the summer “barbecue season" not far off, we could see some buying to replenish some inventories. June hogs closed at 89.4c per pound, down 2.625c on long liquidation and new short positions tied to potential decline for pork by China. We continue to favor the sidelines in hogs.

Coffee, Cocoa and Sugar:

May coffee closed at $1.4045 per pound, up 95 points on recent buying from the $1.32 level. The recent strength was tied to concern of possible crop production cuts in Vietnam and Central America due to drought and rust problem. We like coffee from here after having been "absent" from this market for some time. Use stop protection. May cocoa closed at $2,130 per tonne, down $11.00 on long liquidation tied to the prospect of improved crop prospects in Ivory Coast, the world’s largest grower of cocoa beans, any production gains impacts prices. Stay out for now. May sugar closed at 17.73c per pound, up 8 ticks on light short-covering but prices remain near recent lows tied to surplus concerns. We prefer the sidelines until fundamentals improve.

Cotton:

May cotton closed at 86.65c per pound, down 1.68c on profit-taking after recent strength that saw prices gain almost 15% since the beginning of the year. Strong demand from China had been a major factor but with "bird flu" concerns impacting demand for commodities by China, we prefer the sidelines now after having been bullish for some time. The USDA report last week suggested U.S. farmers would be planting fewer acres had prompted the buying was not enough to offset the demand concerns.

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About the Author
John Caiazzo

John has over 40 years experience at major U.S. Brokerage firms as Manager and Director of various International Divisions and is the founder of his own trading and brokerage firms. Over the years John has gained a wealth of knowledge and experience in all aspects of investments and trading. He was also a floor trader at the Commodity Exchange in New York. He formed Acuvest in 1999 and can be reached at futures@acuvest.com.

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