The market psychology continues to be mired in the ever increasing angst tied to the "chaos" in Iraq and the situation in Afghanistan and Syria.
Interest Rates: The September 30-year Treasury (CBOT:USU14) bond futures closed Friday at 136 28/32nds, down 9 points but was up over 32/32nds for the week, its first weekly gain in four weeks. The disappointing GDP reported as minus 2.9 was the determining factor in the decline in yields and the rally in prices. On the other side of the "coin" was the University of Michigan/Thomson Reuters consumer sentiment index rose to the June final reading of 82.5 from the May 81.9 figure. We continue to view treasuries as in a range and would hold "strangle" spread positions for now.
Stock Indices: The Dow Jones industrials closed at 16,852.49, up 6.36 points but for the week lost 0.6%. The S&P 500 (CME:SPU14) closed at 1,961.01, up 3.9 points but lost 0.1% for the week. The tech heavy Nasdaq closed at 4,397.93, up 18.88 points and for the week managed a gain of 0.7%. Ongoing concern over global events, rebalancing of portfolios by institutional investors for the quarter and disappointing GDP numbers moved the equity markets this past week and will probably be a determining factor going into the new week and quarter. The Consumer sentiment index from the University of Michigan/Thomson Reuters of 82.5 from May’s 81.9 was a positive factor but markets concentrated on the retail sector numbers which were disappointing. We continue to implore holders of large equity positions to implement risk hedging strategies to avoid another 2008 type selloff.
Currencies: The September U.S. Dollar Index (NYBOT:DXU14) closed at 80.07 on Friday, down 20.9 points or 0.3% against its major trading partners and its lowest in over five weeks. The higher than expected revision to the U.S. second quarter contraction of 2.9% was clearly a surprise and was confirmation that the Federal Reserve would keep interest rates low which is detrimental to the dollar. While we expect stable interest rates at current levels, our preference for the dollar remains intact relative to the economic conditions of its trading partners. The gains for other currencies against the dollar were the Euro, up 41 points to $1.3652, the Swiss Franc 36 points to $1.1231, the Japanese yen 23 points to 0.9863, the British Pound 16 to $1.7030, the Canadian dollar 21 points to 93.61c and the Aussie dollar 17 ticks to 93.73c. For now we would hold current dollar positions but not add.
Energies: August crude oil (NYMEX:CLQ14) closed at $105.74 per barrel, down 10 cents as fear over Iraq’s oil exports declines. For the week crude lost 1%. A report from Platts that the May oil demand by China declined to its lowest level in nine months was also a negative. We prefer the sidelines in crude. September Natural Gas (NYMEX:NGN14) closed at $4.411 per MBTU after trading as low as $4.357 during the session. We think the worst is over after the increase in stocks was higher than expected on Thursday. The overall picture for Natural Gas remains below last years number and its historical average. Hold long positions in natural gas.
Precious Metals: August gold (COMEX:GCQ14) closed at $1,320 per ounce, up $3.00 but not enough to offset Thursday’s decline. The gains from last weeks Yellen statement are slowly being eroded and we remain sidelined in gold. September silver (COMEX:SIU14) lost 10.7c per ounce closing at $21.055 but still our favorite over gold based on percentage performance over the longer term. Precious metals are not reacting as they have historically during times of geopolitical turmoil. July platinum closed at $1,478.50 per ounce, up $8.40 and for the week managed a gain of 1.5%. September palladium gained $7.05 per ounce, to $842.85 and for the week gained 2.5%. Our prior suggestion of long palladium, short platinum remains intact.