Overview and Observation;
"Where’s the beef?" After waiting anxiously all week for the all-important jobs data, the report left us with more questions than answers. While the U.S. economy added 169,000 jobs in August and the unemployment rate down ticked from 7.4% to 7.3% it was due to fewer people looking for work. Labor force participation rate fell to 63.2%, its lowest level since 1978. Had the 300,000 or so who left the job market been factored in, the unemployment rate would actually have increased to 7.5%. Also, the downward revision for the prior month of 104,000 from 162,000, was the smallest gain since June 2012. The June figure was also trimmed from 188,000 jobs "created" down to 172,000. These revisions of course are disconcerting since the jobs data plays an important role in the marketplace. We continue to suggest that the so called "jobless recovery" is a fallacy and remind our readers that "an unemployed consumer does not consume" and the "manufacturers of those un-consumed products are next to lay off workers." Another of our admonitions is that should the weekly first time unemployment figure decline it is not an improvement in the jobs sector but only that there are fewer workers available to lay off with companies "shutting their doors."
Also of concern has been the Administration’s attempt to garner support internationally as well as in Congress for an attack on the Syrian government. Over 100,000 have died during the 2 ½ year old "revolution" but the last 1,400 killed by chemical weapons is what prompted President Obama to draw a "red line" in the sand. I am not sure if the 100,000 killed prior to the use of chemical weapons cared what killed them, i.e. bullets, bombs, clubs, etc., nor how many women and children were included in that number. The prospect of siding with the rebels whose numbers include terrorist elements makes no sense to me. Nor has it been determined whom it was that used the chemical weapons, Assad or the rebels to secure U.S. involvement. President Obama claims it was the Assad regime while Russian President Putin claims it was the rebels to "provoke the U.S. intervention. Putin claims Russia will support Syria against any U.S. attack. To "re-establish" the "cold war" with Russia and China only for the U.S. President to save face, is also of grave concern. Hopefully Congress will refuse to support more war. The marketplace needs geopolitical calm to allow participants to make meaningful investment and trading decisions. Now for some actual information…
The December 30-year Treasury bond (CBOT:ZBZ13) closed Friday at 129 06/32nds, up 16/32nds as yields declined after a tumultuous week and wide swings in yields and prices. The disappointing economic data appeared to have delayed any Fed "tapering" of stimulus but a reduced bond buying by $10 billion a month in September remains a possibility. We continue to favor the long side of bonds and after this week’s selloff would consider adding to bond calls. We see no reason to expect the Federal Reserve to determine the economy has improved to the point where "stimulus" is no longer required. The jobs data described in the "overview" is no reason to "celebrate."
The Dow Jones industrials closed Friday at 14,922.58, down 14.90 but for the week managed a 0.76% gain. The S&P 500 (CME:SPZ13) closed at 1,655.16, up 0.08 points and for the week gained 1.4%. The tech heavy Nasdaq closed at 3,660.01, up 1.22 points and for the week gained 1.95%. The initial reaction to the nonfarm payrolls data showing 169,000 new jobs were created in August was positive even though lower than economist forecasts for 180,000 jobs. We once again suggest strongly the implementation of risk hedging strategic programs.
The December U.S. Dollar Index (NYBOT:DXZ13) closed at 82.40 on Friday, down 51.6 points or 0.6% as yields declined in the Treasury market. The interest rate plays an important role in dollar investment attraction. A declining yield detracts while an increasing yield, as had been the case early in the week before the employment data, carried the dollar. Other currency gains on Friday against the dollar included the euro, up 57 points to $1.3182, the Swiss franc 82 points to $1.0674, the Japanese yen 111 points to 0.010102, the British pound 41 points to $1.5621, the Canadian dollar 90 points to .9587c, and the Australian dollar 66 points to .9127c. The failure of U.S. President Obama to garner material support for attacking Syrian government positions at the G20 meeting also was disappointing for the dollar. We are on the sidelines for now.
October crude oil (NYMEX:CLV13) closed at $110.53, up $2.16 per barrel tied mostly to the conflict over Syria and the ongoing crisis in Egypt. Fear of curtailment of shipping through the Suez Canal the main feature to recent strength in crude. The proximity of both U.S. and Russian ships in the Mediterranean is also of concern and creating an additional "fear factor premium" for crude. We are on the sidelines.
December copper closed Friday at $3.2575, up 1.36c tied to the weak dollar. Recent weakness in copper was tied to declining demand by China for raw materials. We are on the sidelines in copper after having been bearish for some time tied to our expectation for a slowing global economic condition.
December gold (COMEX:GCZ13) closed Friday at $1,386.50 per ounce, up $13.50 or 1.2% tied to geopolitical concerns as well as the weak dollar. The Federal Reserve’s indication of a "tapering" of its stimulus program also provided recent support for precious metals. We prefer the sidelines. December silver (COMEX:SIZ13), our favorite of the two precious metals for those that "must have" a precious metal in their portfolio closed at $23.875 per ounce, up 62c or 2.7%. Other metals included October platinum gaining $13.60 to close at $1,495.70 per ounce but lost 2.1% for the week. December palladium gained $9.65 or 1.4% to $696.85 per ounce but for the week lost 3.7%. We are on the sidelines for now.
Grains and Oilseeds:
December corn (CBOT:CZ13) closed Friday at $4.68 ¼ per bushel, up 7 1/4c on pre-weekend shortcovering after Thursdays decline to a three week low tied to strong early harvests. Expectations for a large harvest pressured prices. We prefer the sidelines. December wheat (CBOT:WZ13) closed at $6.48 ¼ per bushel, up 8c tied to the strong dollar and shortcovering. We could see further pressure on prices tied to expectations of an improved Canadian wheat crop. Stay out for now. November soybeans (CBOT:SX13) closed at $13.71 per bushel, up 3 1/2c. We like soybeans and have suggested adding to long call positions recently. For now we would hold current positions but not add.
October cattle (CME:LCV13) closed at $1.2570 per pound on Friday, up 47.5 points against the weak dollar. Cattle prices have been under pressure tied to demand and supplies. We prefer the sidelines. October hogs closed at 90.825c per pound, up 142.5 points on shortcovering tied to the shortfall in market ready animals. We could see further buying, but we prefer the sidelines.
Coffee, Cocoa and Sugar:
December coffee (NYBOT:KCZ13) closed at $1.1745 per pound on Friday, up 60 points on pre-weekend shortcovering and against the weak U.S. dollar. Coffee traded at four-year lows trading down to $1.1525. The continued lows for the Brazilian real have prompted heavy movement by farmers. We may have seen the worst for the real and that could prompt further shortcovering in coffee. We would add a few calls here. December cocoa (NYBOT:CCZ13) closed Friday at $2,559 per tonne, down $8.00. Some shortcovering recently tied to the World Bank project to support cocoa farmers. We prefer the sidelines. October sugar (NYBOT:SBV13) closed at 16.79c per pound, up 28 points tied to technical support and ideas of a bottoming formation. We prefer the sidelines until fresh fundamentals support those ideas of support.
October cotton (NYBOT:CTV13) closed at 83.10c per pound, up 70 points on dollar weakness. Recent selling tied to oversupply and good crops in the U.S. and globally. We prefer the sidelines for now.