A number of elements affecting global markets including but not limited to Ukraine, weather in the U.S. and Europe, and economic data which apparently is meant to "confuse". On Friday construction of new U.S. homes climbed to its best level in months but little was made of the fact that most of the increase was in the apartment building category.
Many "homeowners" displaced by foreclosure, have opted to rent and demand for rental properties is the main driver to the building growth. The low U.S. interest rates is not having any material effect on the decline in home mortgage applications and could impede any economic expansion. The major elements of the economy continue to be housing which includes a number of industries, and the labor situation. The unemployment rate of 6.3% fails to consider those who have left the job force, and the "under-employed" that have taken jobs paying much less that the jobs lost. That rate could be as high as 18%. We will continue to monitor the various segments that affect investors and traders.
Interest Rates: The September Treasury Bond closed at 136 20/32nds, down 8/32nds on profittaking after the three days of price gains. The housing construction data prompted the light selling in treasuries which pushed yields higher. The gain in the apartment category was responsible for the increase in construction. The 30 year bond yield gained half a basis point to 3.343%. We expect bonds to remain in a trading range and are now near the higher end of that range.
Stock Indices: The Dow Jones Industrials closed at 16,491.31, up 44.50 points but for the week lost 0.6%. The S&P 500 (CME:SPM14) closed at 1,877.86, up 7.01 points with a minor weekly loss. The Nasdaq closed at 4,090.59, up 21.30 points and was up 0.5% for the week. Shortcovering on Friday reversed early losses. We see a pattern emerging that would confirm our expectation of a sharp selloff in equities. We once again suggest strongly the implementation of hedging strategies for holders of large equity positions.
Currencies: The September U.S. Dollar Index (NYBOT:DXH14) closed at 80.20, up 1.8 points and higher against the Euro $1.3698, down 17 points and the Swiss Franc $1.1225, down 22 points. The dollar was lower against the British pound, $1.6803, up 24 points the Canadian Dollar 91.80 cents, up 13 points and the Aussie dollar 92.86c up 6 points. The dollar lost ground against the British pound after Bank of England Governor Mark Camey apparently convinced investors that the strengthening economic recovery in the UK was not enough to cause a rate hike by the Central bank. Both Camey and the U.S. Fed Chair, Yellen, are committed to hold rates low but with the U.S. stimulus program set to end by the end of the year, we could see higher U.S. rates which would prompt dollar investment attraction. We continue to favor the dollar.
Energies: Crude oil (NYMEX:CLM14) closed at $102.02 per barrel, up 52c and up $2.03 for the week tied to the increase in April U.S. housing starts and the onset of summer driving season. Low refinery output and increased gasoline demand supporting prices. We could see prices holding above the $100 level with forays on either side depending on emerging data. However, we remain bearish tied to our expectations of a slowing U.S. economy.
Precious Metals: Gold (COMEX:GCM14) closed at $1,293.40, down 20 cents on Friday but was up 0.5% for the week. Reports that India might ease its restrictions on gold imports as well as "bargain hunting" and continued media ads helped support prices. However, the lack of historic response to geopolitical events such as Ukraine and the China/Vietnam problems led us to stay on the sidelines. Silver (COMEX:SIM14) closed at $19.33 per ounce, down 15.5 cents but for the week managed a gain of 1.1%. We have been suggesting the purchase of silver rather than gold for those that "must have" a precious metal in their portfolio.
July platinum closed at $1,466.10 per ounce, down $3.80 but 2.5% higher for the week. June palladium closed at $815 per ounce, up $2 per punce and for the week was up 1.9%. July copper closed at $3.1450 per pound, up 60 cents and for the week managed a gain of 2%. We are on the sidelines.
Grains and Oilseeds: Corn (CBOT:CN14) closed at $4.84 per bushel, down 1/4 cents tied to plantings and better weather conditions. Corn plantings nearly complete so we are on the sidelines. Wheat (CBOT:WN14) closed at $6.74-¾ per bushel, down 3-1/2 cents on continued long liquidation after peaking at $7.44 last week. With better weather for the Great Plains next week, we could see additional selling. Some shortcovering may occur during the week but overall we remain bearish for wheat. Soybeans (CBOT:ZSN14) closed at $14.65 per bushel, down 5-1/4 cents on profittaking after the sharp rise from January to the $15.20 level late April where resistance led to profittaking. Concern over tight supplies and weather has somewhat subsided and prices are now trading sideways. Soybeans could go either way from here. We are on the sidelines.
Coffee, Cocoa, Sugar: July coffee (NYBOT:KCN14) closed at $1.8655 per pound on Friday, down 10.25c or 6.2% on profittaking after the sharp rise in prices tied to concern over supplies of the Robusta variety and lower production for Brazil. The supply/demand deficit prompted the rally from the January $1.18 lows through the March high of $2.11, the correction back to the late March $1.67 and then back tothe April 23 high of $2.19. Coffee prices now sideways and once again, depending on new fundamentals, could go either way.
No resistance from shoppers as supermarkets are maintaining low prices with only slight increases. We prefer the "safety" of the sidelines. Only professional traders should try to day trade coffee. When I was a pit trader at the Coffee, Cocoa, and Sugar exchange floor back in the 1980s, I would have loved these price moves. July sugar closed at 17.87c per pound, down 33 points and having been in a tight range for the past 8 weeks or so, I have no interest.
Cotton: July cotton (NYBOT:CTN14) closed at 89.78c per pound down 58 points on continued long liquidation after the USDA reported higher than expected ending stock levels. Better planting weather in the southeast and the Delta as well as good conditions in Brazil could prompt further long liquidation. We prefer the sidelines in Cotton.