Overview and Observation;
Friday the 13th" came and went without even an honorary mention. Markets seem to concentrate on other "criteria" that normally would have had an effect on investor psychology. For one thing "be careful what you ask for." In 2010 the head of the AFL-CIO, the largest union in the country, promoted Obamacare and pushed for it without knowing what it would mean eventually for its membership. Now top members of that union have visited with President Obama to demand an exemption to the program. Too bad individuals have no "clout" to do the same. It seems for now the union has failed to gain such exemption from their White House visit.
On another front the Syrian situation may have been set aside for now. Russian President Vladimir Putin and U.S. President Obama shook hands on an agreement to push Syria’s President Assad into turning over his chemical weapons to the U.N. Unfortunately that will take probably a year, if all goes well, to complete such a turnover. The threat still exists for "someone" to use chemical weapons against the Syrian public and so far there has been no determination as to who was originally responsible. The recent U.S. economic data, including the failure to correctly identify the first time unemployment figure on Thursday due to two states not reporting, lower than expected retail sales, the "exclusion" from the Press on the continuing Eurozone debt crisis among its members appear to have been placed on a "back burner" for now. We will try to "digest" as much as possible to bring "order" to our own analysis and comments. Now for some actual information…
The December 30-year Treasury bond (CBOT:ZBZ13) closed Friday at 129 and 30/32nds, up 9/32nds and only slightly higher than the 129 and 06/32nds of last Friday. Bond prices improved after the preliminary reading on the Thomson Reuters/University of Michigan’s consumer sentiment index was reported as 76.8, which was below the 82 consensus forecast. In addition, a report from the Commerce Department that retail sales rose 0.2% in August, below expectations also provided support for Treasuries. The decline in consumer confidence came after recent increases in interest rates and weak job creation. Higher mortgage rates negatively affected the housing market rebound and talk of the U.S. Federal Reserve reducing its key stimulus program when they meet this week also had an impact on confidence. We do not believe the rhetoric from Washington that the labor situation is improving because two factors remain of concern: The effect on small companies of Obamacare, which could cause employers to cut back on hirings, or hiring of part time workers over full time, and the "adjustments" by the Labor Department of unemployed whereas the 7.4% unemployment rate is in our opinion, fictitious. The true rate based on factoring in the number of workers who left the workforce and the "underemployed" is probably upward of 15%. We look for bonds to remain in a range with an upward price bias. Our program of "strangle spreads" should be put in perspective for traders.
The Dow Jones industrial average closed Friday at 15,376.06 up 75.42 points and for the week gained 3.04%. The S&P 500 (CME:SPU13)closed at 1,687.99, up 4.57 and for the week gained 1.98%. The tech heavy Nadaq closed at 3,722.18 (CME:NQZ13), up 6.22 and for the week managed a gain of 1.70%. Investors lent more credibility to the U.S. Federal Reserve possibility of "tapering" its stimulus program, which they believe showed the Fed’s confidence in the economic gains. However, the fact remains that disappointing economic data, the revisions in the unemployment data and ongoing concerns over Egypt, and Iran’s participation with Russia related to the "fragile" agreement on Syria’s chemical weapons remain problematic. After the Obama "red line" that passed with no action by the President, the term "Paper Tiger" emerged and lent concern as to what the U.S. would do in the event of an attack on its greatest ally in the area, Israel. As President Ronald Reagan once said, "Trust but verify." That remains excellent advice. We remain convinced that a market "shakeout" is due and suggest once again that investors with large equity holdings implement strategic hedging programs.
The December U.S. Dollar Index (NYBOT:DXZ13) closed Friday at 8167.5 up 1 tick in quiet trading as investors ponder the effects of the potential reduction in monetary stimulus by the U.S. Federal Reserve this week. The weak consumer sentiment data as well as the less than "enthusiastic" retail sales figure could prompt the Fed to "think again" about "tapering" its stimulus program so we prefer to wait for the Fed’s clarification of its intentions before suggesting any positions. For now we are on the sidelines. On Friday the currency market was in effect sideways with the euro (FOREX:EURUSD) losing 5 ticks to $1.3303, the Swiss franc (FOREX:USDCHF) gaining 8 ticks to $1.0766, the Japanese yen (FOREX:USDJPY) gaining 13 ticks to 0.010074, the British pound (FOREX:GBPUSD) gaining 70 points to $1.5872, the Canadian dollar (FOREX:CADUSD) losing 27 points to .9637 and the Australian dollar (FOREX:AUDUSD) losing 20 points to 9191. We will monitor the situation and report to our clients directly as to any change in sentiment.
October crude oil (NYMEX:CLV13) closed at $108.21 per barrel, down 39c tied to disappointing U.S. retail sales and the Thomson/Reuters, University of Michigan consumer sentiment index. The "agreement’ formulated between Secretary of State Kerry and his Russian counterpart allayed some fears over Syria and pressured crude prices. The overall supply/demand situation in our estimation warrants lower prices but the "fear premium" tied to Egypt and the Suez Canal keeps us away from any positioning for now.
December copper closed Friday at $2.2220, up 1.2c per pound in light trading. Prices have remained rangebound tied to various economic reports and reduced overall demand. While recent China data supports prices, we see demand declining from the U.S. housing market and a general economic malaise. Our position for some time has been bearish and we suggested taking profits some weeks ago. We would now look to put on a few put options.
December gold (COMEX:GCZ13) closed at $1,308.60, down $22 after being down as much as $28 per ounce. Gold lost nearly 6% for the week. We continue to favor the sidelines. December silver (COMEX:SIZ13) closed at $21.72 per ounce, down another 43c added to the 4.4% decline on Thursday. For the week silver lost 9.1%. We favor the sidelines here as well but once again, our choice for those who "must have" a precious metal in their portfolio, is silver. October platinum closed at $1,444.50, up $1.80 and December palladium gained $6.30 to close at $699.10 per ounce. The white metals had benefited from the gains in auto sales where they are used in catalytic converters. With our concern that increased rates prompted by any Fed "tapering" could impact auto production as well as the housing market we prefer the sidelines.
Grains and Oilseeds:
December corn (CBOT:CZ13) closed at $4.59 per bushel, down 7 1/4c tied to the USDA increased outlook for the domestic harvest. December wheat (CBOT:WZ13) closed at $6.40 ½ per bushel, down 12 1/2c also tied to the USDA increased estimate for global production of 0.5% from the prior month. November soybeans (CBOT:SX13) closed at $13.81 ¾ per bushel, down 14 1/4c tied to expectations of a 4.8% rise in inventories. We are on the sidelines for now after having been bullish for soybeans. Take whatever profits remaining in bean calls.
October cattle (CME:LCV13) closed Friday at $1.2535 per pound, up 52.5 points tied to South American weather which added to the attraction for U.S. animals. We could see further price gains but with prices in the middle of recent movement, it could go either way. Stay out for now. October hogs closed at 90.7825c per pound, up 52.5 points as with cattle but new buying by commodity funds is supporting prices. After the recent price gains however, tied to some extent to feed prices, we could see a correction so we prefer the sidelines here as well.
Coffee, Cocoa and Sugar:
December coffee (NYBOT:KCZ13) closed at $1.1985, per pound, down 75 points and remain at 4 year lows. We prefer the sidelines. December cocoa (NYBOT:CCZ13) closed at $2,598 per tonne, up $7.00 tied to the decline in certified stocks in New York and producer pricing. The sharp rally from the June lows is prompting higher prices at the retail level and some resistance to higher chocolate prices are expected. While we could see yet higher prices, we are concerned over the extent of any correction from here. Stay out. October sugar (NYBOT:SBV13) closed at 17.11c per pound, down 7 ticks but has formed a triple top technically. Without follow through we could see a return to recent lows so we prefer the sidelines here as well.
October cotton (NYBOT:CLV13) closed at 85.02c per pound, down 86 points in sideways trading after trading at the mid-August high of 93.90c to the early September 82.30 low. Stay out for now.