Overview and Observation; A level of skepticism pervades the global marketplace as economic and geopolitical events are largely set aside in favor of what I believe to be “irrational exuberance.” The phrase first coined by former U.S. Fed Chairman Greenspan appears appropriate today. While first time unemployment benefit applications declined by 16,000 to 339,000 as reported on Thursday, I have been indicating for some time that should the number decline it does not necessarily reflect an improvement in the U.S. labor situation. The fact remains that any reduction in that number merely means that employers cannot layoff additional workers without having to “close their doors.” Productivity improvement is a result of having remaining workers do the work of two or more laid off workers. The labor department revised upward to 355,000 from the initially reported 352,000 first time unemployment applications from the prior week. The situation remains critical in our opinion. You cannot be happy about creating 150,000 (quality doubtful) jobs in a month while “losing” 350,000 weekly or 1.2 million during the same period. Neither the administration nor the media associates the two numbers. Meanwhile on Friday GDP was reported as 2.5% rather than the 3.2% analysts had expected. The extension of jobless benefits in our opinion merely perpetuates the problem and the eventual increase in mortgage and other credit defaults will soon “come to roost.” We once again suggest the conservative approach to investment holdings. Now for some actual information to hopefully guide our readers through the “maze” of ongoing global data releases……
Interest Rates: June U.S. Treasury bonds closed Friday at 148 27/32nds, up 29/32nds as the U.S Commerce Department reported GDP grew at 2.5% in the first quarter of 2013 against analyst expectations for a growth rate of 3%. In addition to that negative news, the Thomson Reuters/University of Michigan’s consumer confidence index for April was 76.4 down from 78.6 in March. Bad news prompted ideas of continued QE by the U.S. Federal reserve putting pressure yields and upward pricing for treasury bonds and other interest rate instruments. Once again we view Treasuries as in a trading range.
Stock Indices: The Dow Jones industrials closed at 14,712.55, up 11.75 points and for the week managed a gain of 1.1%. The S&P 500 closed at 1,582.24, down 2.92 points but for the week gained 1.7%. the tech heavy Nasdaq closed at 3,279.26, down 10.72 points but for the week gained 2.3%. The slower rate of U.S. economic growth or GDP of 2.5% against expectation of a 3.2% rate prompted the selling pressure on Friday and the rally in treasuries, viewed as a safe haven. We continue to suggest strongly the implementation of hedging strategies for holders of large equity portfolios.
Currencies: The June U.S. Dollar Index closed at 82.54 on Friday, down 30 points tied to the disappointing GDP report showing an expansion of only 2.5% against economist expectations of a 3.2% rise. Other currencies posted gains with the Euro gaining 11 points to $1.3032, the Swiss Franc 25 points to $1.0608, the Japanese yen 137 points to 0.10206, the British Pound 39 points to $1.5478, and the Canadian dollar 34 points to .9824. The Australian dollar lost 17 ticks to close at $1.0241. We continue to favor the dollar if only in relation to what we feel is growing economic concerns in the Eurozone.
Energies: June crude oil closed at $93 per barrel, down 64c tied to disappointing first quarter U.S. economic growth which could negatively affect demand. For the week crude oil posted a 5.4% gain. We continue to prefer the short side of crude either through the futures market or the purchase of put options.
Next Page: Copper, Precious Metals, Grains and Oilseeds, Meats and Softs
Copper: Copper continues its downward slide with July copper losing another 5.95c to close at $3.1830. Our intermediate goal of $3.00 is fast approaching and while we suggested taking some profits on short positions or put positions, we would hold some positions.
Precious Metals: June gold closed at $1,457.20, down $4.80 on late selling after having traded as high as $1,484.80 early in the session after the U.S. economic data. The “historic” safe haven has been a disappointment recently as expectation that some Eurozone members may be selling gold in order to meet their debt obligations. We continue to favor the sidelines in precious metals. July silver closed at $23.905 per ounce, down 27.7c for the same reason. June palladium closed at $681.95 per ounce, up 55c and July platinum gained $12.40 to close at $1,476.50 per ounce. We favor the sidelines here as well even though platinum and palladium benefit from any gains in automobile sales due to their use in catalytic converters and in oil refining.
Grains and Oilseeds: July corn closed at $6.19 ½ per bushel, down 5c on concern over reduced demand from China. However, with the unfavorable weather conditions in the U.S. Midwest we could see some supply concerns emanating and would look at call positions for corn. July wheat closed at $6.90 ¼ per bushel, down 13 1/2c but favor the sidelines in wheat based on adequate supplies and reduced demand. July soybeans closed at $13.82 ½ per bushel, up 10 1/4c tied to expectations of increased demand for sorghum from China. We continue to favor the long side of soybeans but would use stop protection.
Meats: June cattle closed at $1.2250 per pound, down 40 points on continued long liquidation and adequate supplies as well as E.Coli fears stemming from flood waters. We would hold current long positions and add on set backs but keep stops in place. June hogs closed at 92.375c per pound up 55 points on further shortcovering and new buying in front of the summer barbecue season. Improved Chinese demand also a factor. We like hogs from here but use stops.
Coffee, Cocoa and Sugar: July coffee closed at $1.3370 per pound, down 3.7c on continued pressure from reduced demand and increased supplies. Stay out for now. July cocoa closed at $2,367 per tonne, up $7.00. The completed West African harvest and expectations for reduced production next year could improve pricing further. We like cocoa from here but use stops. July sugar closed at 17.37c per pound, down 1 tick and is on our “no interest” list.
Cotton: July cotton closed at 84.32c per pound, up 1.09c tied to delays caused by flooding along the delta and reduced plantings. We like cotton from here for the intermediate term. Use stop protection.