Overview and Observation:
The markets this past week continued to be "directed" on an almost daily basis by economic data, European debt crisis information, and to a lesser extent the bombing during the Boston marathon, which raised security questions. Given the circumstances of a complete shutdown of the city services, i.e. transportation, and the order to citizens to remain in their homes, concern was voiced about how two individuals were able to cause this disruption of a large city’s functions. We will have to wait for the determination of whether this was isolated or the beginning of extended terrorist activities in the U.S. As for the markets, we continue to believe a global recession is in evidence and no constructive response by the U.S. Administration can prevent its expansion. Application of conservative management of investment programs is recommended.
The June U.S. Treasury bond closed at 148 and 4/32nds up 10/32nds as concern over global economic data continued to influence market participants. Gains in consumer spending and the increase in GDP of 3.1% annual rate after the 0.4% for the last three months of 2012. While the good news prompted the late weak rally in equities, concern that a reduction of Americans’ take home pay due to the increase in payroll tax was of concern and prompted the strength in treasuries. We continue to view treasury bonds as in a trading range between 140 and 152.
The Dow Jones industrials closed Friday at 14,547 up 10.37 or 0.7% but for the week lost 2.14%. The S&P 500 closed at 1,555.25, up 13.64 or 0.88% but for the week lost 2.10%. The tech heavy Nasdaq closed at 3,206.06, up 39.70 points or 1.25% but for the week still lost 2.7%. The rally on Friday was a result of the improved GDP and better than expect earnings reports from important companies. We continue to warn investors of an impending major correction in equities and to implement hedging strategies as soon as possible. We have programs to help holders of large equity portfolios in determining which strategies we would apply to their specific holdings configuration.
The June U.S. dollar closed at 8385.5, up 17.4 points on Friday tied to better than expected U.S. economic data and the relative concerns over the Eurozone continuing problems. The U.S. currency performed better against the yen tied to the Group of 20 statement that Japan "should define a credible medium term fiscal plan." Additionally they stated "large surplus economies should consider taking further steps to boost domestic sources of growth." The implications persist that while we view the U.S. economy as continuing in the throes of economic contraction tied to labor, that its performance relative to its trading partners warrants support for the dollar. The June Euro closed at $1.3060, up 7 ticks while the others closed lower including the Swiss Franc $1.0716, down 16, the Japanese yen $010046, down 151, and the British Pound $1.5236, down 44 ( tied to the Fitch downgrade of its debt). The Canadian dollar managed a gain of 10 ticks to .9734 and the Australian dollar gained 7 ticks to $1.0244. Stay with the dollar.
May crude oil closed at $88.01 per barrel, up 28c mostly on a correction after recent selling pressure which still managed to produce a nearly 4% loss for the week. An OPEC official from Venezuela late Thursday had proposed a meeting to address the recent selling in crude but other members were "skeptical" that such a meeting would take place. Discussions around how to pull Europe out of its recessionary trend did not amount to any definitive action so we remain bearish towards crude. An oversupply exists in the market.
July copper closed at $3.1675 per pound, down another 5.15c on Friday and continues its slide as it posted its largest weekly decline in 16 months. Continued concern that the U.S. and China, the biggest users of industrial metals, have reduced demand, China is recording a slowing economy and as a major user of copper has pressured prices. Copper has lost 20% in price since it posted its February 2012 high over $4.00. We have favored the short side of copper for over a year and recommend taking some profits on positions both in futures and put options. While we see no reason to change our bearish stance, taking some profits is always a good idea.
June gold closed Friday at $1,400.90 per ounce, up $8.40 but still lost 7% for the week. During the session Friday, the June contract touched $1,424.70 but failed at that level and prices sold off once again. The media "gold bugs" continue to push gold for investor portfolios as the only market that will "protect" against global financial and economic concerns. Gold had rallied more than 400% over the past ten years and even this recent decline does not spell the end to gold demand. However, based on our expectation of "no inflation" and rather a period of "deflation," we see no reason to expect demand to increase other than that which is "promoted" by the sellers of gold purchase programs. Stay out. June silver closed at $23.155 per ounce, down 11.5c as selling pressure continues. Margin call selling in weak markets is continuing to cause liquidation across the board. Our recommendation to clients has always been, "never meet a margin call with money, just liquidation." A margin call is an indication that you are on the wrong side of the market. Adding good money to a bad position makes little sense. June palladium closed at $677 per ounce, up $7.20 or 1.1% while July platinum closed at $1,428 per ounce, down $10. We prefer the sidelines in precious metals.
Next Page: Grains, Meats and Softs
Grains and Oilseeds:
July corn closed at $6.33 per bushel, up 3 1/4c on planting delays in the Midwest caused by heavy rains. We had preferred the sidelines but some light buying with stop protection is warranted if delays in plantings continue. July wheat closed at $7.10 ½ per bushel, up 3 3/4c on pre-weekend short covering after recent weakness. We prefer the sidelines in wheat. July soybeans closed at $13,81 ¾ per bushel, down 8 1/4c on concern supply shortages for processing could increase demand from South American producers. We had favored the long side of soybeans but would hold stop protection in place.
June cattle closed at $1.21375 per pound, unchanged after Thursday selling on profit-taking. Cash market concerns could continue to pressure prices so we would hold stop protection on any longs. June hogs closed at 90.15c per pound, down 45 points on profit-taking after recent gains. Slowing demand for U.S. pork prompted the long liquidation on Friday. We could see sideways price action until fresh fundamentals tied to Summer barbecue demand emerges.
Coffee, Cocoa and Sugar:
July coffee closed at $1.4265, up 1.85c on continued short0covering but we prefer the sidelines until some meaningful demand numbers emerge. With global recessionary implications we see no reason to expect improved demand. July cocoa closed at $2,340 per tonne, up $21 on improved demand for chocolate products. We like cocoa from here for a continued upward move but use stop protection for any new positions. July sugar closed at 47.87c per pound, up 26 points on short-covering but persistent reports of beneficial rain in Brazil could help crops. Stay out for now.
July cotton closed at 85.15c per pound, down 33 points as reports emanated from the China Cotton Association that their statement of fiber sales from reserves will pressure prices further. Stay out for now.