The latest Chinese trade balance data showed larger than expected year-over-year declines for imports and exports. European data included lower than expected UK industrial production and an in-line French CPI result. US import prices and US export prices came in lower than trade forecasts, while a private survey of US consumer sentiment came in much higher than expected. Treasuries fell back from 4-week highs and went on to close Friday’s trading session with moderate losses. Apparently, a risk-off vibe and a lack of flight to quality interest in Treasuries have resulted in a range down move below Friday’s reversal low in a manner that shifts the charts negative. Interest rate market action might be restricted today because of a BOJ meeting and US PPI readings scheduled for Wednesday morning.
The Dollar rallied from a 7-month low into positive territory but could not hold midsession strength as it finished Friday with a mild loss. Increasing expectations that the Fed will reduce the size of their upcoming rate hikes continues to weigh on the Dollar going into the holiday weekend. In contrast, the Yen has rallied sharply in the wake of JGB buying by the Bank of Japan. The Dollar bounced from the spike down attempt last Friday, but the rally does not appear to have significant commitment. Therefore, soft New York manufacturing readings and a contraction in US PPI should knock the Dollar back into the Friday range and rekindle bearish confidence. In other words, we are skeptical of the Dollar’s capacity to trend higher.
The euro is overbought technically and seeing thicker resistance given soft German inflation and no change in Italian CPI readings for December. While the Yen forged a higher high early this week, it might be restricted today because of a BOJ meeting ahead, initial readings are that the BOJ will be very responsive with policy news and directives of policy. In addition to Dollar weakness, a fresh uptrend extension and good UK jobs readings, the Pound bull camp has the edge.
Global markets started out under pressure but regained a positive tone by the close of Friday’s trading session. Comments from J.P. Morgan that they expect a mild recession as their “central case” weighed on sentiment early. However, Bitcoin and Ethereum both reached 2-month highs, which provided a boost to global risk appetites. US equity markets climbed up into positive territory and finished with modest gains. Global equity markets were lower at the start of this week with declines generally of less than 1%. We suspect that US manufacturing readings from New York will set the tone of the US NYSE opening but an increase in earnings report flow will likely produce temporary volatility events.
GOLD, SILVER & PLATINUM:
With the gold and silver markets overbought with upside extensions forged to start this week, it appears that the dollar has prompted a reversal and perhaps a measure of long liquidation or stop loss selling. However, the dollar has not forged a significant upside at the start of this week, and the index could pull the index back into the prior two days trading range. According to Reuters, the PGM markets should draft support against the risk-off vibe early this week because of a 22% November year-over-year decline in South African PGM production.
With the copper market early this week not forging a new high for the move on its initial attempt to rally and recoiling from that rally, the market has the feel of a temporary top. Like the precious metal markets, the copper market saw a contraction in Chinese retail sales as more important than better than expected Chinese Industrial production and GDP data.
Despite a risk-off environment and a stronger Dollar, crude oil has forged another higher high. The market is also higher in the face of a negative takeaway from Chinese economic data overnight and in the face of a 2.9% increase in 2022 Chinese oil production and therefore upside action this morning is impressive. In fact, the crude oil market has also ignored lower Chinese refinery 2022 throughput.
Like the crude oil market, RBOB has forged a higher high for the move and has discounted negative fundamental news. As indicated in crude oil coverage, the EU has moved to strengthen the ban of Russian fuel buying. The trend is up especially with a higher high early this week in the face of risk-off track and weak global equity market action. The ULSD market did not post a higher high perhaps because of mild weather in the US and forecasts for a return to mild weather in Europe.
While natural gas continues to respect consolidation support fundamentals are still decidedly bearish. Over the weekend, An industry expert said that the Freeport LNG export facility “might be” blocked from restart because of generators throwing off formaldehyde which would clearly justify continued delays.
There is still not much rain in the next week for Argentina with hotter temperatures, however, there is rain in the second week out and the technical action for March meal is bearish. In addition, traders still expect a record Brazil crop. March meal experienced a key reversal on Friday from an overbought level and the gap lower opening today is a bearish technical development. Palm Oil futures managed to rally 0.18% on Monday and the market closed 5.2% lower last week and is down sharply this morning. March soybeans closed moderately higher on the session Friday and the buying pushed the market up to the highest level since December 30. A positive tilt to the energy markets plus continued concerns for the Argentina crop given the dry outlook for the next week plus follow-through buying from Thursday’s bullish USDA report were all seen as positive forces.
Some traders are hopeful that there will be enough rain in the next two weeks to see parts of the Argentina corn crop recover, and a continued expectation for a big Brazil crop helped to pressure the market this morning. China demand looks to remain strong with expanding livestock production. China pork production for 2022 was up 4.6% from 2021 and reached the highest level since 2014. March corn closed moderately higher on the session Friday and the buying pushed the market up to the highest level since January 3rd. The market closed more than 20 cents higher on the week with help from the bullish USDA report. There is still not much rain for central and eastern growing areas in Argentina for the next week and temperatures look to increase. This could cause further stress to the crop over the next 10 days or so, and there is plenty of uncertainty for the weather two weeks out.
Follow-through buying from the bullish USDA report which showed much smaller than expected US production added to the positive tone.
March wheat managed to close just slightly higher on the session Friday with talk of the oversold condition, concerns that weather in key growing areas could turn more threatening after the three day weekend and strength in the other grains helping to support. It was a small range and the market is technically oversold. European Milling wheat futures hit a near 10 month low last Friday with talk of stiff competition from Black Sea producers helping to pressure. On Monday, the market hit a new 10-month low. Egypt bought 120,000 tonnes of wheat from Russia. Philippines are tendering for 165,000 tons of feed wheat. IKAR raised their Russia wheat export forecast to 45.5 million tonnes from 44 million previous.
With the oversold condition of the market and a turn up in pork values, the market may see a short-term recovery bounce. February hogs closed lower on the session Friday after choppy and two-sided trade. It was an inside trading session. The USDA update last week showed a higher export forecast for 2023, and this brings down per capita supply for US which makes the supply outlook less burdensome. The market is oversold after the collapse from the December 27 high of 91.60, down to last Thursday’s low of 77.57. The USDA pork cutout released after the close Friday came in at $80.15, up $2.27 from Thursday but down from $82.77 the previous week. The CME Lean Hog Index as of January 11 was 75.49, down from 75.96 the previous session and 78.26 a week prior. The USDA estimated hog slaughter came in at 486,000 head Friday and 281,000 head for Saturday. This brought the total for last week to 2.688 million head, up from 2.296 million the previous week and up 8.7% from a year ago.
The USDA boxed beef cutout was up 94 cents at mid-session Friday and closed 87 cents lower at $276.62. This was down from $282.99 the previous week and was the lowest it had been since December 23. The market acts a bit top-heavy, and we cannot rule out a short-term downside correction. However, the recent consolidation has corrected the overbought condition. Cash live cattle trade was on average weaker last week. As of Friday afternoon, the five-day, five-area weighted average price was 156.56, down from 157.60 last week. February cattle managed to close slightly higher on the session last Friday as the move to the lowest level since January 9th failed to spark new selling interest. The recent drop in open interest would suggest some long liquidation selling has emerged in recent days. The USDA supply/demand update showed less supportive supply news for the first quarter with an adjustment higher in beef imports for the coming year.
Cocoa prices have fallen back from last Monday’s 9-month high but remain well supported after climbing well above their January lows. With the market receiving critical demand-side data later this week, recent bullish supply developments can help cocoa to extend its current recovery move. March cocoa was able to shake off early pressure to finish Friday’s trading session with a moderate gain and a third positive daily result in a row. For the week, March cocoa finished with a gain of 46 points (up 1.8%) which was a third positive weekly result over the past 4 weeks.
While coffee remains on track for a fifth negative monthly result in a row, the market is starting to show early signs that a longer-term low is close at hand. In order to sustain a recovery move, however, coffee needs to see additional signs that global demand is improving. March coffee rebounded from early pressure to finish Friday’s trading session with a moderate gain and the first back-to-back positive daily since mid-December. For the week, however, March coffee finished with a loss of 6.60 cents (down 4.2%) which was a third negative weekly result in a row.
March cotton closed slightly lower on the session last Friday with choppy and two-sided trade, but the market closed 3.9% lower for the week. The bearish tilt to the USDA supply/demand report helped to limit any recovery bounce. The jump and US production, US ending stocks and an adjustment lower in global demand were all seen as bearish forces. The surge higher in crude oil helped to provide some support. Global 2022/23 consumption was revised 0.8% lower than projected for December which helped to boost stocks. China, India, and Pakistan are facing demand issues including a downward trend in profit margins and yarn orders, which in turn have resulted in conservative buying practices for cotton.
The sugar market put together a strong rally late in December that took it to its highest level since February 2017, as it received carryover support from stronger energy prices and benefited from expectations of lower output this season for several key producers. Global 2022/23 production remains on-track to reach a record high, however, so the sugar market could drop to much lower price levels during the first quarter. March sugar held within an inside-day range as it finished Friday’s trading session with a moderate gain. For the week, March sugar finished with a gain of 77 ticks (up 4.1%) which broke a 2-week losing streak and was a positive weekly reversal from last Monday’s 9 1/2 week low.
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