"Economic improvements" prove irrational exuberance

Currencies:

The U.S. dollar (NYBOT:DXH14) closed Friday at 80.745, down 39 points on the disappointing non-farm payrolls report issued by the U.S. Bureau of labor Statistics. The reported jobs creation of 74,000 missed expectations of more than 200,000 as reflected in the ADP analysis and prompted lower interest rates by virtue of heavy buying in Treasury instruments. Lower U.S. rates detract from dollar investment appeal and the dollar lost ground against most of its trading partners with the exception of the Canadian Dollar (CME:D6H14), which closed at 91.59c down 29 points. The gainers included the euro (CME:E6H14) up 75 points to $1.3665, the Swiss franc (CME:SFH14) up 71 points to $1.1084, the Japanese yen (CME:J6H14) up 63 points to 0.09612c, the British Pound (CME:B6H14) up 13 points to $1.6476, and the Australian dollar (CME:A6H14) up 1.09c to 89.60c. We had favored the dollar recently but have now moved to the sidelines pending further economic and interest rate data.

Energies:

February crude oil (NYMEX:CLG14) closed at $92.72 per barrel, up $1.06 tied to the weaker dollar and improved Chinese import data. The disappointing U.S. Labor statistics usually indicates reduced energy demand but failed to offset the dollar weakness as the U.S. government data released Wednesday showed a sixth straight weekly decline in crude oil inventories. We continued to view crude oil as overpriced based on our global economic assessment as a result of continued concerns over various countries’ debt crises.

Copper:

March copper (COMEX:HGH14) closed at $3.3420 per pound, up 4.3c or 1.3% tied to higher than expected Chinese copper imports for November. For the year, copper has managed a gain of 31%. Economists are expecting a slight decline in China’s fourth quarter GDP tied to reduced growth in the retail and investment sectors as well as a decline in factory output. We moved to the sidelines in copper some weeks ago after having been bearish for some time.

Precious Metals:

February gold (COMEX:GCG14) closed at $1,246.90 on Friday, up $17.50 tied to the weak U.S. dollar and the U.S. non-farm payrolls figure, which was sharply below expectations. The ongoing rhetoric from Washington on the so-called economic strength was discounted with the U.S. labor picture as jobs "created" of 74,000 against expectations of around 200,000 and the reduced "employment participation" seemed to contradict the U.S. Administration’s contention of an "improvement" in the economy. Gold has long been the "alternative" in times of economic and currency concerns and the corrective rally this week was a harbinger of future precious metals activity. Once again for those that must have a precious metal in their portfolio, we prefer silver based on relative downside risk and percentage price gain potential. March silver (COMEX:SIH14) closed at $20.22 per ounce, up 54c or 2.7% against gold’s gain of 1.4%. April platinum closed at $1,436.90 per ounce, up $17 or 1.2% while March palladium gained $9.55 or 1.3% to close at $746.05. Here also we continue to prefer palladium to platinum.

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