| CommStock Israel Investor Insights Newsletter
Monday, May 25th, 2009
The following report has been prepared as a courtesy to clients of CommStock Trading Ltd. for general informational purposes only and is not intended to, and should not, be construed as any recommendation or advice for any specific investment decisions.
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1) Dollar hits 5-month low
The greenback loses value after a negative revision on the U.K.'s outlook makes investors wonder if the U.S. is next. Inflationary fears heat up.
By Catherine Clifford, CNNMoney.com staff writer
Last Updated: May 22, 2009: 3:35 PM ET
NEW YORK (CNNMoney.com) -- The dollar fell to a five-month low against the euro Friday as inflationary fears heated up and the market continued to fret over a downgrade of the U.K.'s outlook.
The 16-nation euro traded at $1.4008, up 0.8% from late Thursday when it ended at $1.3891.
The British pound cost $1.5911, up 0.4% from Thursday's close of $1.5844.
Meanwhile, the dollar gained against the Japanese yen. The dollar bought ¥94.81, up from ¥94.42 late the previous day. The yen is often considered a safe haven in times of market uncertainty.
On Thursday, ratings agency Standard & Poor's affirmed the United Kingdom's top-tier credit rating, but lowered the country's outlook to "negative" from "stable."
S&P attributed the downward revision was to the possibility that the U.K.'s debt burden could reach 100% of its gross domestic product, despite the British government's "further fiscal tightening."
Given that the U.S. government has been spending at such a rapid pace, investors feared that a similar fate awaited the U.S.
"If the U.K. had the outlook for its credit rating cut from stable to negative, then the U.S. deserves to as well," said Kathy Lien, director of currency research at Global Forex Trading, in a research note.
On Friday, Moody's, another major ratings agency, attempted to assuage market jitters by saying that the U.S. did not face an imminent credit downgrade. But the worries were already firmly planted in investor mindset.
"Both the U.S. and the U.K. are spending money left and right and although the risk of a actual credit rating downgrade anytime time soon is low, it is more than likely that Standard and Poor's is already reviewing the U.S.' sovereign debt rating," said Lien. "Whenever there is uncertainty, investors always sell first and ask questions later."
The shuttering of a major Florida bank also weighed on the dollar. Thursday, BankUnited FSB in Florida, with $12.8 billion in assets, was closed and a consortium of private equity firms took over the failed bank.
"This is the largest bank failure since IndyMac last year and points to ongoing weakness within the U.S. banking system," said Camilla Sutton, currency strategist at Scotia Capital, in a research note.
A modest rally on Wall Street also worked to weaken the greenback. Investors sometimes move assets into the dollar to avoid exposure to other, more risky parts of the marketplace. But with all three major U.S. indexes up on the day, that safe-haven bid eased.
2) Commentary by David Zwebner, CEO of CommStock Trading
U.S. Economy
U.S. Treasury Secretary Geithner tried to ease investors' concerns, saying that he is committed to bringing down the budget deficit over time so that the U.S.'s high credit rating is preserved. The June U.S. T-bonds closed down 1.01/64th at 119.20/64ths, the lowest close in six months. The June U.S. dollar index finished down .585 at 80.055, the lowest close in over seven months.
Grains and Cotton
The USDA said that Japan bought 46,738 tons of U.S. corn for this season and 56,898 tons for 2009-2010. July corn closed up 6.25 cents at $4.302, the highest close in over four months.
USAgnet.com said that a report on ethanol published by SRIC Consulting predicted that global demand for ethanol will increase 9.3% per year for the next five years.
July wheat jumped up 19 cents to $6.125, the highest close in over three months, helped by a weaker U.S. dollar and concerns that planting the spring crop is taking too long.
Sugar
Late yesterday, the USDA said that it expects world sugar production of 159.9 million tons in 2009-2010, up from 148.7 million tons the previous year. Thanks to strong demand for sugar and ethanol, ending stocks are expected to fall 761,000 tons to 31.2 million tons or 19% of annual use. If these estimates are true, that will be the lowest stocks to use ratio in 16 years. July sugar was up .08 at 15.70, the best close in over a week.
Orange juice
Florida continues to receive drought-relieving rain, but juice prices remain firm. July orange juice ended up 1.60 cents at 91.70.
After the close, the USDA said that there were 1.385 billion pounds of frozen orange juice concentrate in storage on April 30th, up 14% from a year ago.
Metals
August gold finished up $7.70 at $960.50, the highest close in two months, taking advantage of this week's weakness in the U.S. dollar.
China's General Administration of Customs said that copper imports totaled 317,947 tons in April, up 7% from a month ago and up 149% from a year ago. July copper closed up 4.65 cents at $2.0975.
Energies
July natural gas closed down 9 cents at $3.636 with plenty of supplies available and mild temperatures over most of the U.S.
OPEC will meet in Vienna on May 28th and so far, the consensus seems to be that they will not change production levels. July crude oil ended up .62 at $61.67.
Currencies
The Bank of Japan improved its assessment of the economy for the first time in nearly three years, saying that they expect the first quarter to have been the worst. The June Japanese yen ended down .0022 at 1.0593.
Statistics Canada said that retail sales were up .3% in March to C$33.9 billion, the third consecutive monthly gain led by new car sales. The June Canadian dollar closed up 1.37 cents at 89.07, the highest close in seven months.
The U.K.'s Office for National Statistics said again that real GDP was down 1.9% in the first quarter and down 4.1% from a year ago, as expected. The June British pound closed up .0080 at $1.5917, the highest close in six months.
Real GDP in Singapore was down 10.1% in the first quarter from a year ago.
Several markets closed early today ahead of Memorial Day weekend.
David Zwebner, CEO
CommStock Trading Ltd.
Tel: +972-(0)2 624-4963
Fax: +972-(0)2 624-4876
www.ecommstock.com
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