A Call For Contradictions On A Day Of Good News In U.S. Labor

Weekly unemployment filings in the U.S. sank to their lowest levels in more than 41 years last week. This should be cause for jubilation throughout the land, indeed throughout the whole world. Everyone everywhere needs the American economic behemoth to work its mighty magic in the global economy.

The fall in claims should add more fuel to the fire regarding a Federal Reserve rate hike, the theory being that the central bankers don’t want growth to become too rapid.

Yet bond yields fell below the 2.30% mark. This may be reflecting concerns about the spate of mixed earning reports coming out recently.

Today’s bad news was led by Caterpillar, which declined 3.5%. CAT cited the stronger dollar and low commodities costs (making it less attractive to invest in new American-cost heavy equipment to harvest raw materials). Some of the sales decline is also cyclical.

3M dropped around 3%, suffering from the robust greenback but also from what a spokesman termed a soft economic environment. American Express fell by 3%+ as well.

One sector that should be causing alarm is railroads. Union Pacific, tightly wrapped up in raw materials shipping, fell to a 52-week low.

On the bright side, GM, UnderArmour, and SanDisk surged up. GM posted record North American profits and forecast that the second half of ’15 will be even better. Even that news was mixed. GM did this on slower sales and higher profit margins.

West Texas Intermediate crude is again flirting with the $48 per barrel price, off today by 1.65%. Brent North Sea was down a similar percentage and itself is flirting with the $55-per-barrel support level.

Oil’s long-term fundamentals are not supportive of higher prices. As we have said, as soon as the price rises, more marginal producers – shale and tar sands – step in and re-start their production engines.

Saudi Arabia, playing a long game, is keeping production very high and dragging the other OPEC states along with it. They’re keeping the Russians in check, a primary goal of their state-controlled oil industry.

Gold is on the down slope once more in afternoon trading after pushing higher this morning to $1106 per ounce. The great contradiction is that the 10-year bond yield is communicating a lack of faith in a near-term Fed rate hike but gold investors and traders are reading it just the opposite.

Everything that is moving down today seems to have been affected by the U.S. dollar’s behavior, directly or indirectly.

Gold is an exception. ‘Twas regular traders who pushed down the trading price today. Moreover, there is no support from physical gold buyers. We believe they are scared to jump in, having no idea where the price of the metal is going, though secretly believing that direction ultimately is downward.

Wishing you as always, good trading,