Market Commentary Week ending March 7, 2014
Interest Rates: The June Treasury bond(CBOT:USM14) closed Friday at 131-03, down 21/32nds but traded as low as 130-20 after the better than expected monthly jobs report. The U.S. Labor Department reported 175,000 new jobs in February higher than the expectations. The February gain and the upward revision of 25,000 for the prior two months gave rise to investor assumptions of an improved jobs picture, a conclusion we wholeheartedly disagree with. The weather played an important role in the obvious disparity of the prior months and until a return to "normalcy" we expect the data emanating from Washington to remain "questionable". Hold current long positions in Treasuries. We see no reason to expect the Federal Reserve to change its current policy.
Stock Indexes: The Dow Jones Industrials(CBOT:DC) closed at 16,452.72, up 30.83 points and for the week gained 0.8%. The S&P 500(CME:ESM14) closed at 1,878.04, up 1.01 points and for the week gained 1%. The tech heavy Nasdaq closed at 4,336.22, down 15.90 points but for the week gained 0.7%. The rally in equities was attributable to the better than expected increase in February nonfarm payrolls increasing by 175,000 against analyst expectations for a 140,000 increase. The Ukraine situation continues of concern but our focus is on the U.S. Federal Open Market Committee and the Fed Chair, Janet Yellen’s press conference. We do not feel the two months data on employment is enough to deter the Fed’s current policy. Once again we strongly urge holders of large equity positions to implement risk hedging strategic programs.
Currencies: The June U.S. dollar index(NYBOT:DXM14) closed higher on Friday posting a gain of 7.2 points at 79.88. The better than expected U.S. jobs data and revisions to prior reports led investors to cover shorts in the dollar on the expectation of stable or even higher rates. The Treasury yield increases and price declines promoted that idea. However we do not feel any change in rates is justified based on one or two months data especially considering the impact from the severe weather. The June euro(CME:ECM14) closed at $1.3869, up 8 ticks but down from the intra-day high of $1.3913, its highest level in 2.5 years. The euro had gained on Thursday after the ECB President, Mario Draghi, suggested the central bank was not going to "ease policy further in the short term." Other currencies were mixed with the Swiss franc gaining 32 points to 1.14. The Japanese Yen(CME:JYM14) lost 27 points to close at 0.09682, the British pound(CME:BPM14) lost 18 points to 1.6709, the Canadian dollar lost 91 points to 89.92, and the Australian dollar lost 25 points to 90.09. We are on the sidelines for now as outside elements will "dictate" currency relationships.
Energies: April crude oil(NYMEX:CLJ14) closed at $102.58 per barrel, up $1.02 or 1% tied to the better than expected U.S. jobs data which implied increased demand for energy. The conflict in Ukraine however pressured prices recently as Russia, in response to U.S. and Western statements of possible sanctions, could control deliveries of crude and natural gas(NYMEX:NGJ14) through the Ukraine if pushed. Sabre rattling by U.S. President Obama is not shared with Western Europe who are totally reliant on the energy products controlled by Russian President Putin. We are on the sidelines for now but our overall view remains negative for crude prices but positive for natural gas.