Written Commentary
BONDS:
The treasury markets ranged sharply lower and initially added to those declines through the nonfarm payroll report, but recovered going into last week. The recovery in treasury bond prices coincided with the downside reversal in equities and might have been assisted by a recovery in the US dollar. It should be noted that the US yield curve inverted in the wake of last Friday’s jobs figures which posted a 2 year low in the US unemployment rate and an increase in average hourly earnings on a year-over-year basis. While the war rages on and will periodically provide flight to quality buying support for treasury bond and notes prices, hawkish Fed dialogue (San Francisco Fed President Daly indicated she is in favor of a 50-basis point hike next month), the war rages on, nonfarm payrolls were more negative to prices than positive, and the charts favor the bear camp early on.
CURRENCIES:
Apparently last Friday’s US jobs data was viewed favorably by dollar traders as prices initially flared sharply higher and continue to grind higher. It is possible that reports of a Ukrainian helicopter attack of a Russian fuel depot (inside Russia) confirm Ukraine is more than holding on against Russian forces. Seeing Ukrainian forces on the offense is likely to enrage the Russian president and in turn reduces the chances of a cease-fire compromise. With talk of strengthening sanctions on Russia following signs that Russia has shifted its focus to the countryside, it is not surprising to see the dollar index tracking higher early this week. The March 29th Commitments of Traders report showed Dollar Non-Commercial & Non-Reportable traders are net long 35,086 contracts after net buying 1,587 contracts.
With the Yen early last week forging a massive, short covering bounce and the currency shifting negative on the charts last Thursday, a resumption of the March slide is now expected. However, the currency has not been able to benefit from a very hawkish stance by the Bank of Japan regarding the “need” for even Japanese higher rates. Like the euro, the Swiss franc has been impacted by market fears that the war in Ukraine is likely to continue for the foreseeable future (following a shift in Russian tactics from urban to rural fighting) clearly points a lack of Russian interest in negotiating peace.
STOCKS:
The equity markets chopped around both sides of unchanged last Friday with US jobs data conflicting. The S&P did forge a 3 day low thereby extending the recent negative chart set up. The market initially drafted support from a $5 per share gain in Game stop shares (+2.9%) but that supportive news was offset by a Ford vehicle recall of 737,000, signs that auto production continues to be hindered by parts shortages and by dual Amazon negatives of a government probe and a unionization vote expected to favor the unions.
While the June S&P aggressively rejected 4500 last week and appeared to be tracking positively early this week, corporate are limiting while Fed rate hike talk is probably discouraging some investors. From a technical perspective, the S&P is likely to experience short covering buying as the specs are now “net short”. The Commitments of Traders report for the week ending March 29th showed E-Mini S&P Non-Commercial & Non-Reportable traders are net short 53,871 contracts after net buying 1,135 contracts. Short covering bounce and minimal net spec and fund buying.
The NASDAQ is likely seeing some headwinds from news that Tesla will not resume production today in Shanghai and the tech sector is also undermined because of news that Starbucks will halt share buybacks. The March 29th Commitments of Traders report showed Nasdaq Mini Non-Commercial & Non-Reportable traders were net short 34,540 contracts after increasing their already short position by 18,263 contracts.
GOLD, SILVER & PLATINUM:
Despite negative outside market forces like higher rates, a stronger dollar and lower economic uncertainty following the US jobs report, the gold and silver markets were tracking higher early this week. Even though the most recent monthly jobs report failed to match growth expectations, the unemployment rate fell to at least 50-year lows and that in turn prompted the San Francisco Fed President to suggest she was now in favor of a 50-basis point rate hike in May. On Friday, gold ETFs added 176,458 ounces to their holdings bringing the year-to-date gain to 8.2%. Last week gold ETF holdings increased by 201,282 ounces. Also on Friday, silver ETFs increased their holdings by 2.1 million ounces bringing the year-to-date change in holdings to +1%.
The silver market has also reduced its net spec and fund long, but a moderate wave of stop loss selling could be seen The March 29th Commitments of Traders report showed Silver Managed Money traders reduced their net long position by 1,813 contracts to a net long 42,429 contracts. Non-Commercial & Non-Reportable traders are net long 62,124 contracts after net selling 4,412 contracts. Going forward, this week will present a somewhat thin global economic report slate, with global PMI and import-export prices unlikely to have a direct impact on precious metals. However, it is possible that grain prices could be an inflationary spark for precious metals as a shift in Russian tactics to capture broad swaths of Ukraine territory could totally prevent or seriously delay planting at the world’s number four corn exporter! From a short-term perspective, the rally in the dollar at the end of last week presents initial headwinds.
With the June palladium contract forging a 4-day high at the end of last week, and trading near last week’s highs in the early going this week, the bull camp maintains a slight edge. On Friday palladium ETFs reduced their holdings by a mere 586 ounces, and holdings last week declined by 4658 ounces, but those holdings are still 1.2% higher on the year. Unfortunately for the bull camp, recent ETF flows in the PGM markets have presented more daily outflows than inflows, thereby suggesting retail or small investor demand is soft despite what has probably become a very slow movement of supply out of Russia. We have little doubt that smuggling is occurring, but the volume of flow should not keep pace with world demand especially if China avoids serious slowing from its current lockdown efforts. Fortunately for the bull camp, the COT positioning report continues to show palladium holding a “net spec and fund short” and that should mitigate stop loss selling and could potentially facilitate fresh bargain-hunting buying.
COPPER:
With an extremely poor finish to the trade last week, the bias in copper prices has shifted down. In retrospect, a series of disappointing Chinese economic data points and a pattern of inflows to LME copper warehouse stocks last week suggest both supply and demand favor the bear camp. Fortunately for the bull camp, the weekly Shanghai copper warehouse stocks posted a 4th straight week of declines and have fallen back below 100,000 tonnes. Some long-term studies point to a narrowing of the anticipated world deficit in copper because of China even though some Russian supply will be lost.
ENERGY COMPLEX:
While the strategy of the Russian president is difficult to determine, analysts suggest the Kremlin has shifted its focus away from taking cities and instead is looking to secure rural areas of Ukraine. Therefore, the Russians are not yet considering compromise and therefore oil sanctions are likely set to extend well into the future. By many measures, the war is intensifying with reports last week suggesting a Ukrainian strike against a fuel depot in Russia, and the Russians over the weekend in turn hitting a key Ukrainian refinery and other critical infrastructure in the port of Odessa. Therefore, it is logical to assume that sanctions on Russian oil exports will continue well into the future with the transactions underway at the time of embargo likely completed now. With reports of a decline in Russian March oil output (-50,000 barrels per day) and several countries announcing the likelihood of additional sanctions against Russia, gradual tightening of world supply is likely and that should help cushion crude oil prices well above the level ($90) where the initial war premium began to register in prices.
The charts in the unleaded market favor the bear camp with recent global traffic congestion studies showing less activity in many global metro areas. Fortunately for the bull camp, the most recent COT positioning report showed a very minimal net spec and fund long which in turn should help the market respect support. The Commitments of Traders report for the week ending March 29th showed Gas (RBOB) Managed Money traders reduced their net long position by 3,311 contracts to a net long 55,026 contracts. Non-Commercial & Non-Reportable traders net sold 6,561 contracts and are now net long 47,768 contracts. The gasoline market should see ongoing demand from spring breaks and from improving weather in the northern hemisphere. The ULSD market has slightly fewer negative chart signals than gasoline and the net spec and fund long in diesel is nearly “flat”, thereby reducing stop loss selling potential and perhaps setting the stage for bottom picking. Heating Oil positioning in the Commitments of Traders for the week ending March 29th showed Managed Money traders are net long 10,336 contracts after net buying 1,527 contracts. Non-Commercial & Non-Reportable traders were net long 7,528 contracts after increasing their already long position by 2,910 contracts.
While the natural gas market has not made a higher high since last Thursday, the market appears poised for further gains. In fact, despite the proximity to contract highs the net spec and fund positioning in natural gas remains significantly “short”, leaving open the potential for further short covering buying. The March 29th Commitments of Traders report showed Natural Gas Managed Money traders net bought 6,230 contracts which moved them from a net short to a net long position of 179 contracts. Non-Commercial & Non-Reportable traders reduced their net short position by 14,300 contracts to a net short 92,087 contracts. While comments from the Kremlin suggest Russia will not undermine their reputation as a reliable gas supplier to the West, Germany is expected to implement fresh sanctions against Russian this week and that could prompt the Russian national gas company to reverse recent Western supply flow. The US Baker Hughes rig operating count last week showed a gain in gas rigs operating of one which puts the rig count at the highest level since October 2019.
BEANS:
November soybeans closed moderately lower on the session Friday and the selling push the market down to the lowest level since February 4. A continuation of the selling pressure after Thursday’s sharp break helped to pressure the market with meal leading the market lower. Soybean oil closed moderately higher on the session and May soybeans closed sharply lower on the day with the market now down as much as $1.55 3/4 in just seven trading sessions. The higher than expected March 1st stocks report showed that demand for old crop soybeans was below trade expectations, and the record high planted area leaves new crop supply at potentially much higher than expected. With the strong palm oil exports in March, traders believe Malaysia palm oil stocks may have dropped to a one year low. The Bloomberg survey suggests stocks declined for a 5th month in a row to the smallest since March 2021.
CORN:
December corn posted a new contract high, and a new contract high close on the session Friday, and again early this week with follow-through buying from Thursday’s bullish USDA reports. The market managed to close 19 cents higher on the session. Record high fertilizer prices may help limit yields around the world, and also hold down planted acreage. Weakness in soybeans and wheat helped to keep old crop corn weak. May corn closed moderately lower on the session Friday, and down 19 cents on the week. Brazil exported 14,278 tonnes of corn in March, as compared with 292,013 tonnes one year ago.
WHEAT:
May wheat closed sharply lower on the session Friday and experienced the lowest close since March 1. For the week, the market was down $1.17 3/4. With the Russia/Ukraine war still in progress, there are plenty of wheat exports still in question from the region. Russia President Putin warned that he could limit supplies of agricultural products to friendly countries only. This could be a major disruption.
HOGS:
June hogs closed lower on the session Friday and down sharply from the highs. The market closed 542 points (4.3%) lower for the week and the weekly key reversal helps to confirm a short-term peak may be in place. The market is still operating under the negative technical influence of the sweeping key reversal from Thursday, and June hogs continue to hold a huge premium to the cash market. The USDA pork cutout, released after the close Friday, came in at $101.96, down $4.52 from Thursday and down from $108.15 the previous week. The CME Lean Hog Index as of March 30 was $103.13, down from $103.66 the previous session but up from $102.25 a week prior.
CATTLE:
June cattle opened higher on the session Friday but closed sharply lower on the day. Continued demand concerns have helped support some long liquidation selling in the cattle market, and short-term technical indicators are rolling over and suggest at least a technical correction might be in order. The longer-term supply fundamentals for the next few months look supportive for the market, but there are short-term demand concerns and the market is technically overbought. The USDA boxed beef cutout was down 96 cents at mid-session Friday and closed $1.25 lower at $267.14. This was up from $262.64 the previous week. The USDA estimated cattle slaughter came in at 109,000 head Friday and 40,000 head for Saturday. This brought the total for last week to 639,000 head, down from 659,000 the previous week but up from 603,000 a year ago.
COCOA:
Cocoa prices saw volatile action during the first quarter, and once again could not sustain last week’s recovery move into the weekend. With near-term demand concerns remaining a front and center issue for the market, cocoa is likely to remain on the defensive early this week. May cocoa continued to see downside follow-through after Thursday’s negative reversal as they remained under pressure to finish Friday’s trading session with a sizable loss. For the week, however, May cocoa finished with a gain of 37 points (up 1.4%) which was a second positive weekly result in a row.
COFFEE:
Coffee prices survived a retest of their mid-March lows and held their ground above their 200-day moving average as they finished last week’s trading on an upbeat note. While the market will continue to have questions on near-term demand prospects, coffee is seeing bullish supply developments that can help the market maintain upside momentum during the early stages of the second quarter. May Coffee reached a 3 1/2 week high, but ran out of upside momentum late in the day as they finished Friday’s trading session with a moderate gain and a third positive daily result in a row. For the week, May coffee finished with a gain of 6.55 cents (up 3.0%) and a second positive weekly result in a row.
COTTON:
May cotton closed lower for the second day in a row last Friday as the bearish USDA report continued to sink in. The market closed 14.57 lower for the week, a 13% decline. The dollar was higher and crude oil and the stock market was lower, all of which was negative for cotton. The 1-5 day forecast models for West Texas show no rain. The 6-10 day forecast models show above normal temperatures and below normal precipitation.
SUGAR:
Sugar prices finished last week within a fairly tight consolidation zone within striking distance of a new 4-week highs. While global risk sentiment and key outside markets have seen mixed results over the past few weeks, sugar continues to see bullish supply developments that can help to extend an upside move early this week. May sugar continued their late March coiling pattern into the new month and quarter as it finished Friday’s inside-day trading session with a moderate loss. For the week, May sugar finished with a loss of 24 ticks (down 1.2%) for a third negative weekly result over the past 4 weeks.
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