Weekly Futures Market Summary Jan 31 22

BONDS:

While the treasury market carved a tight trading range last Friday, the trade favored the upward track. US scheduled data was largely supportive of bond bulls with the Michigan sentiment and US spending readings consumer spending dropping. However, the employment cost index reading remained hot, and the net take away is the consumer is faltering at the seam time facing higher prices.  Although March bonds did not forge a fresh higher high for the move early this week, prices remain near an upside breakout and are likely to be supported following the Chicago purchasing manager’s report which is expected to come in soft.

CURRENCIES:

While the dollar exploded for fresh contract high last Friday, it fell off in what is likely to be labeled a profit-taking setback. However, it is also possible that the dollar retrenched off ideas that US data continues to be weak and could along with a surge in infections pushback Federal Reserve rate hike timing. Keep in mind that some analysts last week were projecting four or more rate hikes this year with some projecting a 50-basis point hike in March. Therefore, the trade might have become overdone on its hawkish projections.

Unlike other non-dollar currencies, the Yen did not benefit from the corrective dip in the dollar, Japanese economic data on housing and consumer confidence was very soft and short-term technical signals remain in clear sell modes. The Swiss franc remains very vulnerable on its charts with the initial trade this week right on last week’s lows and seemingly the charts are without support until 1.0700. In retrospect, seeing the Swiss franc track lower throughout the latest Russian generated anxiety event highlights a lack of flight to quality interest.

STOCKS:

Not surprisingly, volatility continued in the equity markets last week with Chevron and Caterpillar disappointing the markets while Apple managed to cushion prices. On the other hand, Caterpillar sales figures were very strong and therefore the problem for the company was in its profit margin. Nonetheless anxiety toward tech sector issues remains in the marketplace even though the level of fear of a hawkish Fed has moderated. Global commodity and equity markets were higher at the start of this week with a risk on vibe flowing from equities. While the fear of a war in eastern Europe remains a threat, inflation signals continuing to flow from rising energy prices and the technical foundation of equities damaged over the last 3 weeks, the markets appear to have stabilized against patently bearish developments.

While the Dow fell back from a 5-day high, prices remain well off last week’s debacle lows in a fashion that suggests a key low may have been forged. In fact, short-term technical signals have turned bullish, and we see a key pivot point today at 34,410. While the net spec and fund short in the Dow has been moderated with the rally from the last report, seeing the market last Tuesday “net spec and fund short” suggests part of the rally was short covering but also suggests the market retains additional technical short covering buying capacity. Dow Jones $5 positioning in the Commitments of Traders for the week ending January 25th showed Non-Commercial & Non-Reportable traders were net short 5,995 contracts after increasing their already short position by 1,151 contracts. Like other segments of the market, the NASDAQ forged a higher high for the move and appears to be settling down from last week’s extreme negative volatility. The Commitments of Traders report for the week ending January 25th showed Nasdaq Mini Non-Commercial & Non-Reportable traders added 5,275 contracts to their already long position and are now net long 35,269.

GOLD, SILVER & PLATINUM:

Fortunately for the bull camp, the gold and silver trade are catching a lift from a broad-based risk on vibe flowing from equities and higher commodities. However, so far gold and silver are unable to get a positive lift from the inflationary argument, with the markets fully confident in the Fed’s ability to squelch inflation before it becomes a problem. In our opinion, the bull camp needs evidence of soft economic activity and the potential for a delay in hiking US rates beyond March, and that might not be a reasonable expectation. Adding in the noted range up in-vogue US dollar action from last week, the gold and silver trade are facing the prospect of slackening physical demand from China which is on week-long holiday.

With very poor action on the charts at the end of last week, the divergence between platinum and palladium remains very significant. As indicated in all other metals coverage besides palladium, short-term technical indicators like stochastics remain in sell mode in platinum.

COPPER:

With a failure below the 50-day moving average last Friday, the copper market sees that level ($4.3825) as a resistance/pivot point to start out this week. With Chinese markets closed for a holiday, the copper bulls are lucky to be presented with risk on flowing from equities. About the most positive thing that can be said about the copper market is it had a modest net spec and fund long ahead of last week’s $0.22 washout. However, given the size of the positioning before the latest report, we suspect the market retains some stop loss selling capacity.

ENERGY COMPLEX:

While the crude oil market is short-term overbought and the Russia situation seems to have moderated somewhat, the threat against supply remains and is combined with residual demand optimism to leave the bull camp with the edge. In addition to the threat against supply created by the Russian situation, the crude oil market should be supported following news that crude oil in global floating storage declined by 23% over the last week! Apparently, that storage level is now the lowest since September, with the largest declines posted in the US Gulf Coast and West Africa regions. Other bullish influences early this week are strong WTI spread action and reports of very tight Asian supplies. While the Chinese holiday could be dented by virus restrictions, the holiday is likely to expand or speed up Chinese oil demand temporarily. In another minor supportive development, the United Arab Emirate’s managed to intercept a missile fired by rebels in Yemen that took place with the Israeli President in country at the time of the attack. From the bearish side of the ledger, Russian January oil production increase by 0.6% and Iranian oil sales have increased.

With the supply and demand fundamentals in the gasoline market, the least supportive of the energy complex, the RBOB market is likely to continue to take its direction from the diesel market. However, it should be noted that recent implied gasoline demand readings have returned to 5-year average levels which is somewhat deceiving considering that implied demand has grown consistently over the last 5 years.

While the Russia situation has moderated slightly, that issue remains paramount to near term natural gas price action. In fact, pipeline flows from Russia are still not providing badly needed gas to Europe. Reports suggest that the Russian national gas company (Gazprom) will not offer gas on the electronic spot marketplace this week! Despite cold weather in the UK over the weekend and a significant winter storm hitting the US eastern seaboard, weather in Europe has limited gains from the weather front. While gas bulls were benefited because of a Norway LNG plant outage, that disruption was offset by slack demand from Europe. While the latest COT positioning report net spec and fund short is obviously overstated due to the rally since the report was measured, the market is anything but overbought in the net spec and fund categories.