The ongoing Ukraine situation continues to dominate the marketplace with economic data a "close second." Not quite overlooked was the mortgage situation in the U.S. So many industries rely on the housing industry that any material change in the attitude of the U.S. home buyer could have serious effects on the U.S. labor situation and the economy in general. The report for March sales of previously owned properties declined by 7.5% from the year earlier to its slowest pace in 20 months. The sales of new homes declined by 14.5% from February and equally important is the mortgage application number which declined by 19% from a year ago.
Seasonally, this is usually the busiest period for real estate transactions. On the brighter side durable good orders in March were up 2.6% across the board in all sectors except autos were orders were up only 0.4%. Next week we will see additional reports on corporate earnings and the U.S. economy. Now for some individual markets activity along with my usual comments and suggestions.
The June 30-year Treasury bond closed Friday at 134-28/32, up 11/32 after trading as high as 135-09/32 during the early hours of the session. The increased hostilities in Ukraine were an early concern as well as the decline in the Standard & Poor’s Ratings Services reducing the debt rating of Russia to one level above junk. Additional sanctions were being considered by U.S. President Obama in his speech to European leaders. Treasuries declined after the report of the April final reading of 84.1 by the University of Michigan/Thomson Reuters index against economist expectations of 82.8 and above the March reading of 80. The index for April was its highest in nine months and indicated renewed optimism that the economy would improve for the rest of the year. We maintain our position that a "jobless recovery" is not conducive for an "improved economy." Hold spread positions in bonds and roll if necessary.
The Dow Jones Industrials closed at 16,361.46, down 140.19 points or almost 0.9%. For the week the Dow declined by 0.3%. The S&P 500 (CME:SPM14) closed at 1,863.40, down 15.21 points or 0.8% and for the week lost 0.1%. The tech heavy Nasdaq closed at 4,075.56, down 72.78 points or 1.75% and for the week lost 0.5%. Some key disappointing earnings results as well as the increased hostilities between Russia and Ukraine the main feature on Friday even as consumer sentiment improved according to the University of Michigan/Thomson Reuters index which rose its highest since last July. Concerns over the decline in the Chinese Yuan as well as the cut by S&P of its Russian credit rating also a factor. In the case of the Yuan, Chinese products become even "cheaper" and could affect the U.S. trade deficit with China. We remain bearish on the U.S. equity market and would once again implore holders of large equity positions to implement risk hedging strategies.
The June U.S. Dollar Index (NYBOT:DXM14) closed at 79.835, down 4.2 points on the decline in treasury yields which detracts from dollar investment, but rose against the Russian ruble tied to increased tensions between Russia and Ukraine. The S&P downgrade of Russian debt also a factor. The Dollar also continued its gain against the Chinese Yuan and affects global markets. Analysts are awaiting the Chinese last quarter GDP since China is a primary purchaser of global goods and any economic "cutbacks" could have global impact. The June Euro closed at $1.3832, up 9 ticks, the Swiss Franc gained 11 ticks to $1.1352, the Japanese yen up 16 ticks to 0.09791, the British pound up 1 ticks to $1.6793, the Australian dollar up 8 ticks to 92.36 cents, the Canadian dollar lost 9 ticks to 90.49c. We remain sidelined in currencies for now.
June crude oil (NYMEX:CLM14) closed at $100.60 per barrel, down $1.34 or 1.23% tied to the larger than expected U.S. crude supplies. Traders also concerned over the Russia/Ukraine events that could curtail supplies but the overwhelming consideration was the current U.S. supply situation. We had been bearish for some time based on our negative view towards global economies but are on the sidelines in crude. May Natural Gas (NYMEX:HPK14) closed at $4.65 per million BTUs, down almost 6 cents on a U.S. report showing weekly supply levels were up slightly more than analyst expectations. We remain bullish for Nat Gas.
June gold (COMEX:GCM14) closed at $1,300.80 per ounce, up $10.20 or 0.8% and Fridays action helped gold gain nearly 0.5% for the week. Gold has been hovering above and below the $1,300 level and could go either way from here. We are on the sidelines in gold.
July silver (COMeX:SIN14) closed at $19.6965 per ounce, down 1.9c but also gained 0.5% for the week. As we have mentioned for some time, those that must have a precious metal in their portfolio should consider silver over gold if only on "percentage" possibilities. July platinum closed at $1,424.30 per ounce, up $14.70 or 1% but for the week lost 0.3%.
June palladium closed at $811.20, up $8.90 or 1.1% and for the week gained 0.5%. We continue to prefer palladium over platinum. However with sanctions being considered by the U.S., Russia, as a major producer of the white metals could "react" and create a problem for global supplies. We are on the sidelines.
Grains and Oilseeds
July corn (NYBOT:JCN14) closed at $5.11 ¾ per bushel, up 4-1/2 cents on crop progress tied to the severe weather with Funds the featured buyers of grain. Crop progress is behind the historical average but increased plantings could change the supply/demand picture. We are on the sidelines in corn. July wheat closed at $7.09 per bushel, up 12-1/2 cents on pre-weekend shortcovering but remains sideways between the recent highs around $7.25 and lows of around $6.63. Concern also tied to the Ukraine situation but Russian farmers have planted 1.4 million more hectares than the prior year. We are on the sidelines here as well. July soybeans (NYBOT:JSN14) closed at $14.95 ¾ per bushel, up 25-3/4 cents after early week selling and remain near highs. With concern over possible Chinese cancellations, we could see renewed selling early in the week but for now beans remain bullish. We like soybeans but only on declines from here.
June cattle closed at $1.3705, up 1.2 cents on continued reaction to reports of reduced herd sizes. May hogs closed at $1.20650 per pound, down 2 25c after recent strong rallies tied to piglet disease. We refrain from comment but a recent visit to the supermarket showed sharply higher prices for both meats and bacon…..
Cocoa, Coffee, Sugar
July coffee (NYBOT:KCN14) closed at $2.0490 per pound, down 9.9 cents on profittaking after the recent sharp rally that saw prices climb from the early April $1.70 tied to the droughts in Coffee areas during january and February. The "panic" buyers are now awaiting early results from the Brazilian harvest conditions now appear to be normalized. However E.D.&F. Man Holdings unit Volcafe Ltd expects Brazil production to be down another 11% from its January estimate. While current concerns over fewer coffee beans is dominated the market bear in mind prior years surpluses are still to be considered. We are on the sidelines in coffee expecting wide price swings in either direction as reports are made available.
July cocoa (NYBOT:CCN14) closed at $2,948 per tonne, down $31 and remains rangebound since its upward move early this year from the $2,650 level tied to concerns over diseased pods and reports of better global consumption. We are on the sidelines in cocoa.
July sugar closed at 17.80 cents per pound, up 6 little ticks strength can be attributed to lower Brazilian Centre South output and increased preference for ethanol. Yields for cane expected to decline by 8% tied to the drought which affected much of central Brazil in December. We prefer the sidelines in sugar.
July cotton (NYBOT:CTN14) closed at 93.39c per pound, up 19 ticks on shortcovering but pressure from weaker demand holding prices in check. We prefer the sidelines in cotton.