When in doubt, stay out

February 9, 2015 09:44 AM

Interest Rates

The March 30-year treasury bond closed at 147 23/32, down 1 5/32 after the better-than-expected U.S. jobs report from the Labor department showed non-farm payrolls added 257,000 new jobs for January—beating expectations. Even a marginally higher unemployment rate showed good news: the increase from 5.6% to 5.7% is attributed mostly to more people joining the labor force and beginning the job search. Yields rose in all maturities, with the 10-year yield at 1.946%, its highest in four weeks, after adding 13.1 basis points. The 30-year bond yield was up 9.9 basis points to 2.521%. Wage growth was another factor in the selling of treasuries; the increase in yields moves inversely to prices on fixed income instruments. There are 18 million people looking for full time jobs who cannot find anything but part time work. Unlike those who are wearing rose-colored glasses, we feel the labor situation remains problematic. The influx of undocumented immigrants into the labor force that might come with Obama’s newest immigration policy as ordered by the U.S. president will only exacerbate the situation. We doubt it, with the new Congress, but are remaining on the sidelines as we wait and see.

Stock Indices

The Dow Jones Industrial average closed at 17,824.29, down 60.59 points, but with a gain of 3.8% for the week. The S&P 500 closed at 2,055.47, down 7.05 points or 0.3% but for the week also gained 3%. The tech-heavy Nasdaq closed at 4,744.40, down 20.70 points or 0.4%, and for the week was up 2.4%. Concerns over the Eurozone—specifically, Greece, after its electoral victory for anti-austerity—and concerns of continued austerity implementation led to turmoil. This could stretch on, but the euro itself rallied as the newly elected Greek Finance Minister dropped his demands for the ECB to wrote off part of Greece’s €315 billion foreign debt. Long liquidation by investors who did not want to go into the weekend was also a factor along with the weak dollar Friday. The attacks on ISIS after the horrific murder of the Jordanian pilot could create additional angst. A worker "slowdown" at the West Coast ports where ships are lined up waiting to offload could certainly affect the U.S. economy and industrial sector if continued for any period of time. Ad nauseum, we suggest investors with large equity positions take the opportunity of this weeks’ equity gains to implement strategic hedging programs.

Currencies

The March U.S. dollar index closed at 94.785, up 105.3 points on short-covering and new buying after the January payrolls data failed to offset the euro’s strength from the prior week. The euro was up for the week after Greece’s newly elected finance minister dropped his demands for the ECB to write off Greece’s huge foreign debt. The stronger-than-expected U.S. jobs report prompted the dollar’s strength against the euro, the Japanese yen and the British pound. The euro closed Friday at $1.1322, down 1.57¢, the British Pound lost 94 points to close at $1.5233, and the Japanese yen lost 99 points to close at 0.08409¢.

Energies

March crude oil closed at $51.69 per barrel, up $1.21 or 2.4% on Friday. A report was released stating that the number of U.S. rigs actively exploring for oil dropped to its lowest level in nearly five years and that U.S. production is expected to decline in the second half of the year. This could indicate that the collapse in oil prices may have finally triggered the reduction in production and prices may start to stabilize. Other factors include the oil workers’ strike as well as the slowdown in off-loadings of ships at the West Coast ports. The supply glut was the reason for the 46% decline in crude prices last year. Job cuts in the energy industry remain problematic and could impact the overall labor situation as increased cuts across a wide spectrum of industries could result. We prefer the sidelines since supplies remain adequate. The global economic decline will continue, in my opinion, to provide pressure on energy.

Precious Metals

April gold closed at $1,234.60 per ounce, down $28.10 or 2.2% related to the strong dollar prompted by the U.S. jobs report. Gold lost 3.5% for the week. March silver closed at $16.694 per ounce, down 50¢ or 2.9% and for the week lost 3%. Precious metals never respond “historically” in times of geopolitical strife. Now is one such time: ISIS is advancing while being bombed by Jordan and others, the Eurozone is not providing the expcted support for gold, and more. The President of the Philadelphia Fed said in an interview on Friday that it was hard not to justify keeping rates at a place that prompted support for the dollar, which would benefit from higher rates. April platinum closed at $1,221.60 per ounce, down $28.10 or 2.3% and for the week lost 1.3% while March palladium lost $14.40 or 1.8% close at $781.30 but for the week palladium managed a gain of 1.2%. Our preference of palladium over platinum remains intact. March copper closed at $2.586 per pound down one cent but for the week gained 3% tied to the gain in equities.

About the Author

John has over 40 years experience at major U.S. Brokerage firms as Manager and Director of various International Divisions and is the founder of his own trading and brokerage firms. Over the years John has gained a wealth of knowledge and experience in all aspects of investments and trading. He was also a floor trader at the Commodity Exchange in New York. He formed Acuvest in 1999 and can be reached at futures@acuvest.com.