Overview and Observation;
Just when you think the worst is over concerns re-emerge. Once again Greece is in the spotlight being discussed along with the ramifications of their withdrawal from the euro. Greece recently received another bailout of €130 billion tied to additional austerity guidelines. Whether the public will put up with additional austerity programs will be determined in the near term. My feeling is they will be back in the streets protesting. Without the ability for Greece to pay down it interest obligations on current debt, we view any bailouts as "throwing money down a well." Italy and Spain remain problematic to the International Financial markets.
While Americans are concentrating on the current "shutdown" and its impact on the economy we can only wonder why both houses of Congress and the President cannot come to an agreement. I suggest the Republicans offer to allow full Obamacare implementation but for ALL with no exemptions for special interests. Since it is the "law of the land" as emphasized by the Democrats, why are there "exemptions?" A "law" is for all and not open to selective exemptions. I think that might work since neither party wants to further alienate the public now being severely inconvenienced. Now for some actual information to hopefully guide my readers through this maze...
The December U.S. Treasury bond (CBOT:ZBZ13) closed Friday at 133 02/32nds, down 12/32nds in front of this week’s auction of $64 billion of bonds and notes and the current government shutdown. As mentioned in the overview, my suggestion for the Republicans to offer to pass the CR with the only stipulation being the application of Obamacare to "ALL" with no special interest exemptions. Whether the Democrats agree to that is the question, but I feel it is the only way to move this problem along to a final conclusion. The debt ceiling debate is much more important in my mind than this quibbling over Obamacare. Whether or not it succeeds over time is yet unknown, but Congress must get off the "fence-post" before the Oct. 17 deadline for the budget. For now we remain neutral for bonds.
The Dow Jones industrials closed Friday at 15,072.58, up 76.10 but for the week lost 1.67% tied to the continuing U.S. government shutdown with no relief in sight. The S&P 500 (CME:SPZ13) closed at 1,690.50, up 11.84 but for the week lost 0.48%. The tech heavy Nasdaq closed at 3,807.75, up 33.41 and gained 0.34% for the week. The Nasdaq has posted five consecutive weekly gains tied to advancements in the tech sector. We remain convinced that the current price/earnings ratios for many of the companies will deteriorate and prompt another 2008 style decline. We continue to implore holders of large equity positions to implement strategic hedging programs before the decline we see as imminent unfolds.
The U.S. Dollar Index (NYBOT:DXZ13) closed Friday at 80.225, up 37.9 on short-coverings after recent weakness tied to the U.S. government shutdown. The dollar gain Friday was attributable to the re-emergence of the "reality" of the financial crisis of Greece as well as ongoing concerns over Spain and Italy. Should Greece be forced to withdraw from the euro, the ramifications within the Eurozone could be dramatic because the Greece debt is spread around. Without a definite determination of how the U.S. Government debate will be resolved, we refrain from any suggestions for now.
November crude oil (NYMEX:CLX13) closed Friday at $103.61 per barrel, up 30c as concern over the ongoing U.S. government shutdown could curb demand on a temporary basis. On Thursday the Institute of Supply Management reported non-manufacturing purchasing manager’s index fell to a three-month low of 54.4 in September from 58.6 in August. Analysts’ expectations were for a decline to 57.4. Any decline in this index could mean a slowing in an important economic sector and reduce demand for energy. We remain bearish for crude but with the ongoing geopolitical concerns relating to Egypt, Syria and Iran, anything could happen. We are on the sidelines.
December copper closed at $3.30 per pound, up 3c or 1% but for the week lost 0.9%. Copper is tied to the U.S. construction industry and moves in conjunction with equity markets. With the current U.S. government shutdown government loans and financing in question as well as construction spending. We maintain our bearish bias toward copper until fresh fundamentals emerge from major producers.
December gold (COMEX:GCZ13) closed Friday at $1,311.00, down $6.60 and for the week lost 2%. Gold in a wide trading range fostered by the U.S. government shutdown and concern over the debt ceiling debate. We remain on the sidelines in gold. December silver closed at $21.74 per ounce, down 4.6c and for the week lost 0.4%. January platinum closed at $1,388 per ounce up $14.70 but for the week lost 2.2%. December palladium closed at $701.75, up $1.75 but for the week lost 4.1% nearly twice that of platinum. We are on the sidelines in metals for now.
Grains and Oilseeds:
December corn (CBOT:CZ13) closed at $4.43 ¼ per bushel, up 4c on short-covering after recent weakness tied to the increase in expected U.S. stockpiles of corn. We prefer the sidelines. December wheat (CBOT:WZ13) closed at $6.86 ½ per bushel, down 2 3/4c but up from recent lows around $6.37 per bushel. Rains in the Ukraine and Russia are posing a problem, which could impact plantings and production increasing demand from the U.S. We like wheat for continued strength but use stop protection from here. November soybeans (NYBOT:SX13) closed at $12.96 per bushel, up 7 3/4c tied to rains hindering harvesting in the U.S., the world’s biggest producer. We like soybeans once again but use stop protection.
Coffee, Cocoa and Sugar:
December coffee (NYBOT:KCZ13) closed Friday at $1.1415 per pound, down another 1.2c in quiet uneventful trading. Rains in Brazil not having material impact on crop development which remains good in most production areas of Latin America and Central America. We remain sidelined in coffee. December cocoa (NYBOT:CCZ13) closed Friday at $2,625 per tonne, up $4.00 after recent profit-taking. Technicals remain bullish tied to reduced production against demand expectations. We could see further price gains on short-covering but we are on the sidelines in cocoa. March sugar (NYBOT:SBH14) closed at 18.53c per pound, up 1 little tick tied to speculative buying on expectations of lower Brazilian production. The recent 2 cent rally from the lows was short-covering but we see some pressure coming from increased production from Thailand with Brazil and India stable. We prefer the sidelines.
December cattle (CME:LCZ13) closed at $1.3240 per pound on Friday, up 62.5 points tied to concerns over shortages of U.S. supplies. We could see further gains but any purchases should be with stop protection. December hogs closed at 87.875c per pound up 1.10c and new contract highs on concerns that an expected report will show a drop in slaughter rates tied to disease losses. We could see further gains but purchase should be through call option market.
December cotton (NYBOT:CTZ13) closed at 86.94c per pound down 50 points after the recent rally tied to concerns that Tropical Storm Karen might more into Georgia and cause production problems. Concern also about typhoon warnings in China also problematic. The recent "collapse" of over 10c per pound prompted the corrective short-covering rally to current prices but not convincing for us. We are on the sidelines for cotton.