The dollar continued to track in a sideways pattern late last week with the Swiss Franc and the Euro showing only fleeting strength. The currency markets were left within their trading ranges from last week’s developments as US data softened and both sides of the Atlantic failed to provide stimulus for their economies. With the dollar starting out the new trading week under pressure and in the process taking out Friday’s low, the bear camp has regained a measure of confidence. Clearly, the bounce off last week’s lows was the result of a return of safe haven buying of the dollar following disappointing US jobless claims data.
While the shift up on the Euro charts is not overly impressive, the bull camp does appear to have minimal technical and fundamental forces providing lift. Unlike the dollar, seeing dovish ECB commentary provides support to the Euro at the same time that a risk on vibe flowing from global equities rekindles hope that the world recovery will continue thereby providing fresh lift to non-dollar currencies like the Euro. In short, expect the Euro to correlate with equities and pay little attention to European scheduled data. The September 8th Commitments of Traders report showed Euro Non-Commercial & Non-Reportable traders were net long 248,857 contracts after decreasing their long position by 7,115 contracts.
Treasury prices seemed to have found some form of notable value at last week’s lows, particularly as those lows coincide with consolidation low support that has been respected fairly consistently over the last 3 weeks. We would also suggest that the slight deflating of macroeconomic optimism last week suggests that it will take a very significant positive surprise headline to throw December bonds below a recent double low zone of 175-00. Going forward, it is likely that the Treasury bond market will garner residual support from solid auction demand and perhaps escalating hopes that the Fed will be forced to step up given the failure of other into these to provide support to the economy.
The equity markets continued to show vulnerability with many in the trade taking note that the current correction appears to be the most significant corrective event since the major bottom back in March. Obviously, the markets are disappointed by the lack of improvement toward the economy, lack of fiscal and monetary assistance and perhaps markets are fearful of even more political tension despite the fact that political tension is already ridiculous. Fortunately for the bull camp, the market did see some support from Tesla news of a potential purchase of low carbon nickel from Canada as that adds in further environmental attraction to the bellwether stock. Global equities at the start of this week were higher with gains less than 1%. The markets are cheered by comments from a front running vaccine developer CEO statement indicating he expects to be capable of delivering some vaccine doses before the end of the year. With a relatively thin US scheduled report slate early in the week and a looming FOMC meeting announcement on Wednesday we suspect equities will likely draft lift from hope of Fed action.
GOLD, SILVER & PLATINUM:
The fortune of the gold market has changed from last Friday with the dollar showing some weakening perhaps in the wake of news from a leading vaccine developer CEO who indicated he will have doses of the vaccine available before the end of the year if authorized by the FDA. The dollar might also be showing some weakness in the face of favorable Chinese and Japanese data. Unfortunately for the bull camp, gold prices in Shanghai closed lower and Indian spot gold prices managed a very minimal gain suggesting two major gold consuming constituencies continue to slumber.
While the December copper contract flared up to a 4-day high, we suspect that was a one off and temporary reaction to Chinese scheduled data at the start of this week. However, the Chinese house price index was not stronger than the prior month and remains well below the surging price gains forged in May and June. The market should see some residual lift from news of a significant jump in delivery orders for LME exchange supply and also because of reports from China that steel and aluminum production in China might be poised to hint new record output readings.
Clearly, fundamentals in the crude oil market have shifted bearish over the last 3 weeks and the negative news has extended into the new trading week. In addition to OPEC plus allowing some restricted production back on-line last month, US oil production declines are showing signs of leveling out above 10 million barrels per day. Other fresh negatives presented to energy prices include news that global floating storage of crude oil remains 225% above year ago levels, that the US continued to produce more valuable light crude oil than heavy oil in 2019 and fresh suggestions that the bounce in global energy demand will now soften directly ahead. On the other hand, tropical storm Sally is expected to become a hurricane and is set to move toward some offshore facilities and make another transit of key US refineries later this week.
After posting a new contract high, a lower close on Monday will be a key reversal and would suggest the start of a technical correction. November soybeans closed 18 1/2 cents higher for the session on Friday, and this left the market with a gain of 28 cents for the holiday shortened week. The USDA report showed a yield of 51.9 bushels per acre which is slightly above pre-report estimate of 51.7 bushels and the second highest on record. In 2003, with similar July and August weather, the August USDA report showed a soybean yield of 39.4 bushels per acre, up from 38.0 the previous year. But in the Sept report, the USDA lowered its yield estimate to 36.4 bushels per acre. In October that number fell to 34, and by the final update in January it was down to 33.4. In mid-July 2003, 80% of Iowa’s crop was rated good to excellent, but by September 10th, the percentage had fallen to 24%. This year, Iowa’s crop ratings fell from 84% good to excellent in early July to 47% as of September 6th. This suggests that yield might continue to slide in next month’s update.
December corn closed 3 1/2 cents higher on the session Friday and the buying pushed the market up to the highest level since March 20th. For the week, December corn closed 10 1/2 cents higher. The September USDA update was neutral with regards to the US data, but world ending stocks were at the low end of expectations. In addition, traders see some additional damage to Chinese production since September 1st. Yield came in at 178.5 bushels per acre, which was near the pre-report estimate of 178.4 and down from 181.8 in the August report. If achieved, this would be a new record high yield.
December wheat closed 6 1/4 cents lower on the session Friday and the selling pushed the market down to the lowest level since August 27. The market closed 8 1/4 cents lower on the week. The September USDA US report news was neutral, with ending stocks left unchanged at 925 million bushels, which was right on the average estimate. However, the report did help remind the trade that the world is flush with supply. World wheat ending stocks for 2020/21 came in at 319.4 million tonnes, up from 316.8 million in the August report, 299.8 million for 2019/20 and 283.9 million for 2018/19. Both world ending stocks and the world stocks/usage ratio (42.5%) are at all-time highs.
It is a major event that Germany has found ASF in a wild boar as the impact could be significant. With enhanced biosecurity measures, it is possible that the disease will not enter the commercial production for a long time. On the other hand, Japan and South Korea and now China over the weekend banned imports from Germany. About 2/3rds of German exports go to China. Imports from the EU have accounted for 53% of total China pork imports so far this year. Germany is the second largest EU supplier and accounted for nearly 14% of China pork imports. Ideas that less German pork available on the world market should help boost both US and Brazil exports helped to support aggressive buying and short covering last week.
Cattle fundamentals look sloppy for the cash market and the beef market but the surge higher in hogs continues to provide overflow support. December cattle closed 47 higher on the session last Friday and closed up 142 points for last week. The USDA estimated cattle slaughter came in at 119,000 head Friday and 95,000 head for Saturday. This brought the total for last week to 574,000 head, down from 633,000 the previous week and down from 636,000 a year ago. The cash live cattle trade exhibited a bit of firmness at the end of last week. The only place with any volume reported was Texas/Oklahoma, where 2,205 head traded at $101.5-$102 and an average price of $101.92, up from $100-$101 the previous session. This was still down from $101-$104 the previous week. As of Friday afternoon, the 5-area, 5-day average price was $101.21, down from $103.04 the previous week.
While cocoa prices consolidated in a relatively tight range over the past 3 sessions, they were unable to avoid a second negative weekly result in a row. Although the market continues to find support from bullish near-term supply factors, cocoa will have trouble regaining upside momentum until there is a definitive rebound in global demand prospects. For the week, however, December cocoa finished with a loss of 47 points (down 1.8%). Drier than normal weather across West African growing areas over the past few months is expected to have a negative impact on the region’s 2020/21 main crop production, which provided underlying support to the market as the four major producers in the region (Ivory Coast, Ghana, Cameroon and Nigeria) are all looking to have lower cocoa output this season. In addition, a moderate rebound in the Eurocurrency provided an additional source of strength as it bodes well for European near-term demand prospects.
With demand continuing to show signs of improvement while Brazil’s harvest is almost completed, coffee could reach new high ground if dryness issues persist in Brazil. For the week, December coffee finished with a loss of 1.55 cents (down 1.2%). The Brazilian currency fell back into negative territory after first reaching a new 1-week high, which helped to keep further coffee gains in check. The Brazilian trade group Cecafe said that last month’s Brazilian coffee exports were 2.2% less than last year’s total, which provided early support to the market as it reflects tighter than expected near-term supply in spite of Brazil’s 2020/21 “on-year” crop that is widely expected to reach a record high total.
The cotton market reacted positively to the USDA supply/demand report Friday, but sold off steadily after that and made new lows before closing unchanged. News of more rain and possible flooding this week in Texas helped to support the bounce. The report showed a drop in the US production estimate, but overall it was less bullish than trade expectations due to revisions lower in US exports and domestic usage. US 2020/21 cotton production came in at 17.06 million bales, down from 18.08 million in the August estimate and below the average pre-report trade estimate at 17.57 million. The decline was due to revisions lower in acreage and yield. However, exports were lowered to 14.60 million bales from 15.00 million in August. This was counter to average expectations calling for an increase to 15.19 million. US ending stocks were lowered to 7.20 million bales from 7.60 million in August, but this was above the average pre-report estimate of 7.01 million.
The sugar market is finding little carryover support from outside markets and continues to be weighed down by bearish global supply factors. March sugar fell to a new 6 1/2 week low Friday. For the week, March sugar finished with a loss of 1 tick and a fourth negative weekly result in a row. The combination of sluggish energy prices and a pullback in the Brazilian currency weighed on the sugar market as they continue to encourage Brazil’s Center-South mills to produce more sugar at the expense of ethanol. Over the first five months of their 2020/21 season (April-August), Center-South mills have devoted 47% of their crushing to sugar production (versus 35.5% over that same timeframe last year). That came with crude oil prices during late August nearly $20 per barrel above their late April lows, while they finished Friday over $5 below their August month-end levels.
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