Overview and Opinion: On Thursday the U.S. Labor Department reported that initial jobless claims fell by 3,000 to 450,000. Analyst forecasts were for an increase to 459,000. As I suggested some months ago in my commentary, at some point jobless numbers will decline, not due to an improved economy, but by virtue of fewer people available for companies to lay off without having to “shut their doors”. There are no real positive signs of an economic recovery as relates to the base problems of labor and housing and the recent advent of further debit problems in the Eurozone emphasises our position. The University of Michigan index of consumer sentiment declined in September to 66.6, from 68.9 for August, its lowest level since August of 2009. Economist expectations were for a slight improvement. Once again, as I stated in prior commentaries, “Better to keep ones mouth shut and be considered ignorant, than to open it and remove all doubt”. Now for some actual information……..
Interest Rates: December treasury bonds rose modestly closing at 13003, up 7 ticks after the U.S. inflation and consumer confidence was released. The weaker than expected data prompted shortcovering in treasuries pushing short term yields to fresh lows. Our prior short recommendation worked out well for our readers and our suggestion to take profits last week was also on target. Stay out for now.
Stock Indices: The Dow Jones Industrials closed at 10,607.85, up 13.02 points on Friday leading to a gain for the week of 1.4%. The S&P 500 closed at 1,126, up 0.93 for a weekly gain also of 1.4%. the Nasdaq closed at 2,315.61, up 12.36 for a weekly gain of 3.3%. The equity markets succumbed modestly from their highs tied to profittaking and the weak economic and confidence data. We continue to view equity indices as overbought and the slight decline in first time unemployment reported Thursday is of no consequence. As stated in previous comments, there may be fewer people for companies to lay off and that could be the only reason for the lower first time unemployment number Thursday and in the future. Implement hedging strategies on large portfolios. We can provide guidance in that respect.
Currencies: The December U.S. dollar index closed at 8165, up 14.9 points tied to reports that Ireland may require assistance to deal with its financial and economic problems. Flight to the dollar usually occurs when a foreign government is seen in financial distress as was the case for Greece and others. We reserve opinion on the dollar but maintain our bullish view towards the Swiss Franc, which closed at 9907, up 48 points. As stated last week, our goal from of parity with the dollar was achieved and our current suggestion is to stand aside. However, any substantial decline in the Swiss Franc of two to three cents could be a new opportunity to buy. The December Euro closed at 13039, down 37 points while the British pound lost 21 points to 15611 and the Canadian dollar lost 35 points to close at 9681. Other gainers were the Yen 2 points to 11669 and the Australian dollar 24 points to 9282.
Energies: October crude closed at $73.66 per barrel, down 91c tied to the disappointing data on consumer sentiment. On the week crude lost 3.7%. We continue to suggest the sidelines in energy as the market is susceptible to wide price swings and not appropriate for small speculators.
Copper: December copper closed at $3.5220, up 2.85c mostly tied to declining inventories reported recently from various warehouses. The LME reported a decline of 2,950 metric tonnes on Friday to 384.200. The Comex inventory data showed a decline of 324 short tons to 90,372. The weekly report from the Shanghai Futures Exchange showed a gain of 200 metric tons to 98,225. Our long standing bearish stance on copper is one of our losing recommendations. However, the persistence of weak labor statistics and housing problems keeps us bearish.
Precious Metals: December gold closed at $1,277.50 per ounce, up $3.70 and settled at a new record. The reports of problems within the European banking system and of a sluggish U.S. economic recovery prompted the new buying of gold and silver. December silver closed up 4.5c per ounce to $20.816. October platinum closed at $1,621.90, up $10.00 while December palladium fell $3.65 to $545.7 per ounce. Our favorite in the group remains silver but profittaking is in order and would only look to purchase on corrective dips.
Grains and Oilseeds: December corn closed at $5.13 ¼ per bushel, up 17 1/4c on growing concern about the U.S. crop and tightening global grain supplies. While the U.S. harvest is expected to be one of the largest on record, many farmers are reporting reduced yields and that prompted the renewed interest in corn. We prefer the sidelines even as we expect the trend to continue. Any correction could be enough to push less capitalized traders out of the market. December wheat closed at $7.39 ¼ per bushel, up 20c tied to global weather concerns and the rally in corn to almost two year highs. We could see further gains but would stay out of wheat for now after its monumental rally on the disastrous Russian crop reports. November soybeans, our favorite in the group, closed at $10.69 per bushel, up 32 3/4c and up 38c for the week. Disappointing U.S. crop yields and tightening grain supplies as well as the prospect that farmers could opt to plant more corn next year at the expense of soybean acreage. We continue to favor the long side of soybeans but on dips and with those trailing stops.
Coffee, Cocoa and Sugar: December coffee closed at $1.8930 per pound, down 2.5c on speculative selling. The gains in other agricultural commodities could not keep coffee from posting a third losing session. We prefer the sidelines. Decem ber cocoa closed at $2,746 per tonne, up $7 on continued speculative buying. Profittaking on Friday after December hit a three week high of $2,825 and in front of the weekend. Goldman Sachs reportedly lowered its three month guidance to $2,700 on cocoa after previously suggested a price of $3,100. Increased supplies were mentioned as reasoning behind the revision. We prefer the sidelines in cocoa as well. October sugar closed at 24.61c per pound, up 13 points after making 6 ½ month highs on profittaking. Support came from reports of congestion at Brazilian ports and dry weather in Brazil. We could see still higher prices but would avoid this market. Corrections in sugar are usually severe. As a former floor trader myself in the coffee, cocoa and sugar pits I have seen experienced traders get whipsawed. Stay out.
Cotton: December cotton closed at 98.22c per pound, up 2.46c on heavy speculative and fund buying tied to tight global supplies and uncertainty related to Indian exports. Strong U.S. shipments also provided strength in cotton. Commercial demand from textile mills is increasing and forecasts of global supplies declining to the smallest in almost 16 years could prompt additional “scrambling” for cotton. We now see the possibility of $1.10-$1.20 for December cotton but any correction could be swift and deep predicated on further crop or supply news. Suggest small traders stay out.
John L. Caiazzo
Tel: (951) 693-9600 Fax: (951) 693-3170