By John Caiazzo
Interest Rates: The 30-year Treasury bond closed Friday at 135 29/32nds, down 1 12/32nds as better than expect U.S. retail sales data indicated consumers are willing to spend. The uptick in spending could portend economic growth. U.S. retailers reported an increase in sales for August of 0.6% which was in line with expectations. Also the preliminary University of Michigan/Thomson consumer sentiment index rose to 84.6, it’s highest reading since July of 2013. A concern when better economic data is reported is that the U.S. Federal Reserve may consider moving up the end of it’s stimulus program and that could cause an increase in rates. We do not believe the Fed will act upon one or two sets of positive data so after this week’s decline in price and increase in yields, we moved from neutral to positive for bonds.
Stock Indices: The Dow Jones industrial average closed Friday at 16,987.51, down 61.49 points while the S&P 500 (CME:SPZ14) lost 12 points closing at 1,985.55 and for the week gave up1.1%. The tech heavy Nasdaq closed at 4,567.60, down 24 points or 0.5% and for the week lost 0.3%. Concern that the U.S. Federal Reserve may consider raising interest rates sooner that was previously expected. This weeks Federal Reserve meeting will be a determining factor but for now, as in prior weeks market letters, we strongly suggest taking profits and implementing risk hedging strategies for holders of large equity positions.
Energies: October crude (NYMEX:CLV14) oil closed at $92.27 per barrel down 56c or 0.6%. For the week crude lost 1% and has been down for 10 of the last 12 weeks. While some concern over the Russian/Ukraine situation and the ISIS control over some Northern Iraqi oil fields, our overall view of a declining global economy persists and we remain overall bearish towards crude. in our bearish posture. October natural gas seems to have "weathered" the storm and closed Friday up over 3c or 0.9% to close at $3.8570 per MBTU. For the Nat Gas gained 1.7%. We continue to favor the long side of Natural Gas.
Grains and Oilseeds: December corn (CBOT:CZ14) closed at $3.38-½ per bushel, down 2 1/2c on continued selling pressure since trading at $5.14 in May. The sharp slide was attributable to supplies and demand prospects. However, some talk of an early freeze could change the dynamics for both corn and soybeans (CBOT:ZSX14) so we would start "nibbling" at corn. December wheat (CBOT:ZWZ14) closed at $5.03 per bushel, down 6 1/2c since its May trading highs around $7.60. The downtrend and momentum keeps us out of wheat. November soybeans closed at $9.84 ¾ per bushel, up 3 1/4c and could be forming a technical base as well as tied to concerns of an early frost even though no particular information is available for now. According to Texas A&M University we could experience temperatures in the 30s and "crop is behind normal in maturity." That could prompt us to once again look at the long side of soybeans. Buying a few calls may be in order.
Precious Metals: December gold (COMEX:GCV14) closed at $1,231.50 per ounce, down $7.50 or 0.6% as confidence in the economic outlook for the U.S. increased tied to the data reported. Gains in retail sales as well as consumer confidence also a factor but the recent dollar strength the main consideration for gold’s weakness. December silver managed a gain of one cent to close at $18.55 per ounce but for the week lost 2.8%. At current levels I continue to prefer silver over gold for those that "must have" a precious metal in their portfolio. January platinum closed at $1,370.00, down $2.40 while December palladium gained $2.35 to close at $835.55 per ounce. Once again our preference here is palladium over platinum. The similarities of applications for these two white metals do not warrant the price disparity in our opinion.
Currencies: The December U.S. dollar closed at 84.405, down 5.4 points but ws up 2.11% against the Japanese yen for the week. The Japanese yen closed at 0.09323c, down 24 points. Gains were posted Friday for the Euro 21 points to $1.2954, the Swiss Franc 17 points toi $1.0714, and the British Pound 35 points to $1.6242. The gains were a correction from weakness against the dollar during the prior sessions. Losses were realized in the Canadian dollar 27 points to 89.98c, and the australian dollar 48 points to 89.87c. We have favored the dollar for some time and see no reason to change our opinion. The continuing concern related to Russian and the Ukraine could further impact energy to Europe should the situation deteriorate. Hold the dollar.
Coffee, Cocoa and Sugar: December coffee closed at $1.8420 per pound, down 1.25c on light long liquidation but some concern over Brazil’s production after the drought could keep prices from falling further and establish a base for another move over $2.00. We like coffee but use stop protection. December cocoa closed at $3,053, up $25 on shortcovering. The International Cocoa Organization had recently indicated that the previous concern over a production deficit may have been mitigated in West Africa and we could see some liquidation of forward contracts emerge. Stay out for now. March sugar closed at 16.33c per pound, down 30 points and remains solidly on our "no interest" list.
Cotton: December cotton closed at 67.91c per pound, down 18 points but shortcovering brought prices back from the recent lows around 62c. We could see further price gains tied to the USDA monthly crop report which downgraded its domestic cotton harvest. The tighter U.S. inventory situation could be offset to some degree by improved forecast for the Indian harvest. We would buy calls from here or in the case of futures, use stop protection.