The December U.S. Dollar Index (NYBOT:DXZ13) closed Friday at 80.35, down 28.8 points tied to concerns over the congressional impasse over the debt ceiling legislation that unfortunately includes funding for Obamacare. Both houses of Congress are basically in agreement to an increase in the debt ceiling to pay bills but the Republicans want Obamacare held over for a year and Democrats and the President do not agree. We will have to await the outcome before making any recommendations. Gains against the dollar were achieved by the Euro, up 36 points to $1.3526, the Swiss Franc up 54 points to $1.1047, the Japanese Yen up 61 points to $0.010187, the British Pound 1.05c to $1.6138, and the Canadian dollar 10 ticks to 96.89c. The Australian dollar lost 40 points to close at 92.70c. Until which time as we know the results of the current congressional stalemate, we are on the sidelines. Our overall opinion, however, is that higher U.S. interest rates will benefit the dollar and with interests at historic lows, the only way for rates to go is up. Timing of course is the only question. .
November crude oil (NYMEX:CLX13) closed at $102.87 per barrel, down 16c as traders are concerned over the possible impact of the U.S. budget impasse. Other concerns continue to be Syria and Iran but with recent developments such as the U.S. Presidents first communication with the Iranian President since the Shah’s overthrow in 1979 lessened some psychological concerns. We recognize however, that the Iranian President is only a "puppet" of the "Supreme religious ruler" and that nothing will be resolved as to Iran’s nuclear intentions without his approval. We remain overall bearish for crude based on our expectation of global economic weakness.
December copper closed at $3.3210 per pound, up 1.4c against the weak dollar. Demand by China, the largest importer of copper and iron ore, has declined recently as its economy appears to have slowed. We remain bearish toward copper consistent with our view of a global economic slowdown.
December gold (COMEX:GCZ13) closed Friday at $1,339.20 per ounce, up $15.10 on shortcovering in front of the weekend and on concern of a U.S. government shutdown if Congress cannot agree to increasing the debt ceiling to pay existing bills. The problem lies in the Obamacare inclusion in that all important bill. Also comments by a Federal Reserve official suggesting the bond buying stimulus program may be extended into next year was a positive factor for precious metals. For now we are on the sidelines. December silver (COMEX:SIZ13) closed at $21.775 per ounce, up 9 cents following gold. We prefer silver against gold for those that "must own" a precious metal in their portfolio. Otherwise stay out for now. January platinum closed at $1,421.50 per ounce, up $6.80 while December palladium gained $7.00 to close at $730.45.
Grains and Oilseeds:
December corn (CBOT:CZ13) closed at $4.53 ¾ per bushel, down 3c even against the weak dollar as reports that China will import less corn than previously expected. We prefer the sidelines. December wheat (CBOT:WZ13) closed at $6.81 ½ per bushel, up 3 1/4c on shortcovering and against the weak dollar. Recent International Grains Council estimate that global winter wheat area for the 2014 harvest is the highest for winter wheat sowings since 1997. We prefer the sidelines here as well. November soybeans (CBOT:SX13) closed at $13.20 ½ per bushel, up 3 3/4c against the weak dollar but also on a report by Deutsche Bank increasing its forecast for soybean prices and on tight U.S Supplies. Below normal rains in Brazil and Argentina prompted their estimate adjustments. We prefer the long side of soybeans through the purchase of call options.
Coffee, Cocoa and Sugar:
December coffee (NYBOT:KCZ13) closed Friday at $1.1355, down another 2.10c and remains under heavy selling pressure by speculators that tried to "pick a bottom" to the recent selling. Better than expected production from Vietnam as well as surplus availability in Central America weighing on prices. We prefer the sidelines. December cocoa (NYBOT:CCZ13) closed at $2,642 per tonne, up $45 against the weak dollar and on basic technicals. Yields due to drought and hot temperatures in West Africa earlier in the year have affected yields and cocoa bean sizes and prompted new buying. We could see additional buying but prefer the sidelines for now in anticipation that a correction may be due. October sugar (NYBOT:SBV13) closed at 16.81c per pound, down 70 points or 4% and remains on our "no interest" list for now.