Trying to assess the implications of economic and geopolitical data and reports while being deluged by daily occurrences is becoming more difficult.
Interest Rates: The September Treasury bond closed Friday at 141, up 30/32nds with the high during the session of 141 21/32nds as the crises in Ukraine and Gaza/Israel intensified. Ukrainian forces destroyed part of a Russian unit and investors promptly responded by moving from equities back to the relative safety of U.S. treasuries. Also the conflict between the Palestinians and Israel shows no improvement with Hamaz continuing to "ignore" their own "cease fire" agreements forcing Israel to defend itself. As I mentioned in prior commentaries I see no resolution at the moment nor do I feel either side, with all the deaths, will provide a "forgive and forget" atmosphere. Treasuries have exceeded our estimate of the high price range previously indicated and yields continue their downward trend. The reports of Industrial production increase and the decline in consumer sentiment provided the impetus for the rally in treasury prices and decline in yields. A report of New York state factory index decline after hitting a four year high in July was also a determining factor for the transition from equities to treasury bonds. The improvement in the Federal Reserve’s "Beige Book" economic "improvement" was mostly ignored. For now we prefer the sidelines.
Energies: September crude (NYMEX:GCU14) oil closed at $97.35 per barrel, up $1.77 on a short covering correction after recent selling. New York traded crude as well as London’s Brent crude had traded at their lowest levels in months and Friday’s action was mostly shortcovering. We remain bearish for crude. The Mexican company Pemex has indicated plans to open some of the oil fields to private companies and that could create a supply/demand alteration. Natural gas for September delivery lost another 13c or 3.3% to close at $3.7760 per MBTU and for the week lost 4.7%. We could see some shortcovering but fundamentals could prompt an upward correction based on Thursday’sweekly supply report on U.S. natural gas supplies showing a smaller than expected inventory increase. We would look to buy nat gas futures or calls on Monday on the basis of an oversold condition both fundamentally and technically.
Stock Indices: The Dow Jones industrials closed at 16,662.91, down 50.67 points but for the week still managed a gain of 0.7%. The S&P 500 (CME:SPU14) closed at 1,955.06, down 12 points but off the intraday low of 1,941.40. The tech heavy Nasdaq closed at 4,464.93, up 11.93 points and for the week gained 2.2%. The increasing hostilities in Ukraine provided the backdrop for the concerns of investors moving funds back to the relative safety of the U.S. Treasury market. Corporate earnings reported for the second quarter were better than expected and Industrial product was up tied to the gain in U.S. Auto output according to the Federal Reserve. However the Thomson/Reuters, University of Michigan consumer sentiment index declined while U.S. producer prices increased in July. Our overall view of the equity markets remains negative and the long awaited market correction could be moving towards fruition. We urge holders of large equity positions to avail themselves of our risk hedging programs immediately.
Currencies: The U.S. dollar index (NYBOT:DXU14) closed at 81.46 on Friday, down 18.7 points or 0.2% against gains in the Euro of 31 points to $1.3399, the Swiss Franc 46 points to $1.1081, the Japanese Yen 13 points to 0.09774, the British Pound 11 points to $1.6692, the Canadian dollar 14 points to 91.76c and the Aussie dollar 8 ticks to 93.05c. The dollar weakness on Friday was a correction after recent strength against currencies across the board. We continue to prefer the dollar against its trading partners on the basis of the potential risk to the Eurozone tied to the Ukraine situation and the fact that Russia "controls" the flow of energy to those countries.
Precious Metals: December gold closed at $1,306.20 per ounce on Friday, down $9.50 and for the week gave up 0.4%. September silver closed at $19.53 per ounce, down 1.9%. We prefer the sidelines in precious metals which have failed to perform considering the concerns over geopolitical events which normally would produce demand for "safe havens". October platinum closed at $1,457.80, down $11.40 or 0.8% whilc September palladium gained $8.05 or 0.9% to close at $894.20. Our preference in the "white metals" continues to be palladium over platinum. Otherwise the sidelines is preferable.
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