CommStock Israel Investor Insights Newsletter

Monday, June 1st, 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 falls to 5-month low

Global rally in equities and signs the recession is easing made investors hungry for higher-yielding currencies.

May 29, 2009: 12:55 PM ET

NEW YORK (Reuters) -- The U.S. dollar fell to five-month lows against a basket of currencies on Friday as an advance in global equities and signs of an easing global recession drove investors to snap up higher-yielding currencies and riskier assets.

Global stocks rose and some equities markets posted 2009 highs, diminishing the safe-haven allure of dollar assets and sending the euro to a 2009 high against the dollar.

A government report showed the U.S. economy contracted in the first quarter slightly less than initially estimated, but the market had expected evidence of a shallower recession.

"The dollar is being slapped around," said Boris Schlossberg, director of foreign exchange research at GFT in New York.

Analysts such as Schlossberg noted that as global risk appetite increases, the dollar may start reacting negatively to lackluster domestic economic reports.

"The market is now getting realistic about this (U.S.) recovery," he said.

Other reports showed business activity in the U.S. Midwest contracted in May at a sharper rate than expected, while a measure of consumer confidence improved in May.

"There will be a recovery, but it will be tepid," Schlossberg added.

In midday trading in New York, the dollar index, a gauge of the U.S. currency's performance against six major currencies, was 1.4% lower at 79.400, having earlier hit 79.287, its lowest since mid-December.

It is now down more than 6% for the month, on track for its biggest monthly fall since 1985.

The euro was also heading for its largest monthly gain since December and struck its highest level this year against the dollar at $1.4166, according to Reuters data. It was last up 1.4% at $1.4121.

The Australian dollar is up more than 10% in May, on pace for a record monthly gain. It last traded up 1.6% at $0.7980.

Month-end fixings by corporations and pension funds also pushed the dollar lower, traders said.

"We've hit some pretty significant technical levels recently in many currency pairs, which are all adding a bit of selling pressure on the dollar," said Jessica Hoversen, fixed income and currency analyst at MF Global Ltd. in Chicago.

Higher yields

The dollar tumbled last week on concerns U.S. government debt may lose its top triple-A rating as a result of the rising debt levels needed to fix the economy and rehabilitate the financial sector.

Those worries, though still at the back of investors' minds, receded somewhat after Moody's Investors Service affirmed the country's credit rating and the U.S. Treasury was able to sell over $100 billion of government debt.

Now, adding further pressure on the dollar, South Korea's National Pension Service said on Friday it would reduce exposure to U.S. government bonds and equities in its five-year portfolio.

U.S. government bonds account for 83% of the pension fund's direct holdings of foreign bonds, which are currently worth $6.5 billion.

"Money is flowing out of the dollar," said Hoversen at MF Global. "There was a lot of institutional money sitting on the sidelines during the worst of the crisis that now is looking for (higher) yields."

The dollar fell 1.4% to ¥95.55, due partly to selling by Japanese exporters but was well above a two-month trough of ¥93.85 marked last week.

The yen was sold against most currencies apart from the dollar, as investors favored the high-yielders.

 2) Commentary by David Zwebner, CEO of CommStock Trading

U.S. Economy
The U.S. Commerce Department said that real GDP was down 1.5% in the first quarter and down 2.5% in the first quarter from a year ago. The March eurodollars gained .065 to 98.915.

The Commerce Department also said that corporate profits after taxes increased 1.1% in the first quarter, but were still down 15% from a year ago. Exports were down 29% in the first quarter, the biggest drop in 37 years.

The University of Michigan's consumer sentiment index improved from 65.1 to 68.7 in May, a little stronger than expected.

The June U.S. dollar index fell 1.07 to 79.43 as investors appear more willing to leave the "safe haven" with signs of gradual improvement around the globe.

Grains and Cotton
The USDA said that, as of last week, 2008-2009 exports of:
Corn remained down 33% from a year ago.
Soybeans improved from up 10% to up 11% from a year ago.
Wheat improved from down 21% to down 20% from a year ago.
Cotton remained up 3% from a year ago.
July wheat closed up 6.75 cents at $6.372.

July corn finished up 7.5 cents at $4.362, the highest close in over four months with a growing expectation that all of this year's corn won't get planted in time.

Coffee
July coffee closed up .0060 at $1.3740, the highest close in seven months, with Brazil's harvest drawing near.

Orange juice
Yesterday's 6 to 10 day forecast from the National Weather Service is expecting above average precipitation for Florida. July orange juice was higher early, but ended down .60 at 94.15.

Energies
July crude oil climbed $1.23 to $66.31, a new six-month high, encouraged by a steady improvement of economic conditions around the world. Also, several OPEC officials said this week that they expect crude oil to return to the $70's and maybe even $80 per barrel.

Metals
Inflation is the typical consequence of massive monetary stimulus as economies show improvement. August gold closed up $17.10 at $980.30, the highest close in three months. July silver closed up 45 cents at $15.61, the highest close in nine months.

July copper finished up 6.05 cents to $2.1975, helped by news of Japan's big jump in industrial production.

Currencies
Eurostat said that consumer prices are expected to be steady in May from a year ago after an annual gain of .6% in April. It is the lowest inflation rate in over 11 years. The June euro shot up 1.71 cents to $1.4131.

The U.K.'s Nationwide Building Society said that house prices were up 1.2% in May, an unexpected sign of improvement in demand.

Japan's government said that industrial output was up 5.2% in April, the biggest monthly gain in 56 years. Retail sales were up .6% in April, the first gain in eight months. The unemployment rate increased from 4.8% to 5.0% in April, the highest in five years. The June yen closed up .0189 at 1.0511.

Real GDP in India was up 5.8% in the first quarter from a year ago, stronger than expected.

david Zwebner, CEO
CommStock Trading Ltd.
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