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Wkly Futures Market Summary Mar 11.24


With treasuries unable to make a higher high following an uptick in the US unemployment rate and a very large downward revision in last month’s strong payroll reading, prices above 122-00 in June bonds might present a temporary top. Nonetheless, prices should be underpinned by nearly 2 weeks of disappointing data and corrections should be shallow. The focus of the trade this week will return to the inflation front with US consumer price index readings due out on Tuesday and expectations predicting a somewhat lofty/bearish gain of 0.4%.


Clearly, the currency trade saw last Friday’s collection of US scheduled data indicative of further slowing evidence as the dollar ranged sharply lower again. In fact, with a significant downward revision in the January nonfarm payroll reading, an increase in the unemployment rate and softer than expected early earnings, the view of slowing in the US economy is clearly validated. With the rejection of last Friday’s spike low, the dollar trade balances a portion of what was an extremely oversold technical condition early this week. Fortunately for the bull camp in the euro, a widely anticipated EU rate cut is not expected until June according to an ECB official.


With a sharp range up move into fresh all-time high territory, the bull camp has continued to shift its focus to the prospect of lower interest rates and perhaps to an environment where the ebb and flow of Fed policy opinions is not as important! While too much of a bad thing came in begin to drop earnings expectations, for the time being lower rates are offsetting a pattern of negative tech sector headlines.

With the Dow clearly the weakest component of the market from the end of last month, corporate headline news remaining squarely in the bear camp for the Dow.


With outside market action remaining in favor of the bear camp early this week, the bull camp remains hopeful that this week’s inflation data will further revive the prospect of a US rate cut, which in turn would continue to pressure the dollar and treasury yields lower. However, the gold market is vulnerable early this week following comments from the Indian Bullion and Jewelers Association suggesting Indian wedding season demand will soften due to record pricing. Along those lines the domestic Indian gold trade has seen prices shift into a discount relative to global markets, with Chinese premiums narrowing.


Fortunately for the bull camp, Chinese equity markets bucked their recent trend and traded higher helping May copper reject a dip below Friday’s low. In retrospect, we were not surprised to see the copper market fail to hold a new high for the move and close sharply lower Friday as a 3rd straight massive weekly inflow to Shanghai copper warehouse inventories presents a very significant and fresh threat against the recent revival of Chinese copper demand hope.


The crude oil market lost its upside bid last week and appears to have forged a top at the $80.00 level. In our opinion, the bull camp should worry about demand again as a lengthening string of soft US data has become a trend and economic news from China is not definitively upbeat yet. However, prices could find some support from a tightening of US oil supplies because of weakness in the dollar (increased exports) and from the spooling up of US refinery activity after extended maintenance left nearly 20% of US refinery capacity off-line for the last five weeks. Fortunately for the bull camp, the recent jump in the refinery operating rate (from 80.6% on February 9th, to last week’s 84.9%) should improve demand for prompt crude.

Like the crude oil market, the gasoline market damaged its charts with a lower low early this week and faces bearish fundamental and technical influences to start this week. The diesel market continues to hold the strongest supply and demand set up of the petroleum markets, as year-over-year deficits are in place in diesel and distillate, there have been recent signs of strengthening demand and a long string of weekly declines in inventories (almost 2 months straight).

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A battle between improving short-term technical action and long-term bearish fundamentals may result in a choppy pattern this week before US spring planting weather takes over market attention. Despite a higher start to the week as the markets followed through from Friday’s strong action, selling has been noted early this week after a test of 1190 on May futures. Central Brazil saw some scattered showers over the weekend, and more is expected this week.


The corn rally over the last 2 weeks has been a slow steady grind higher gaining 31 1/4 cents, but Commitment of Traders data did not show significant fund short covering over that period. It appears it will take a move above 449 resistance on May to trigger more aggressive buying. However, the current fundamental situation does not bode well for a sustained move above 450 at this point. CONAB will release their latest Brazil production update on Tuesday. USDA decided to leave the 2023/24 US balance sheet completely unchanged from last month and trader focus now shifts to the end of March quarterly stocks in acreage intentions report and Brazil and US weather.


While wheat had a minor bounce after Friday’s USDA report, the bearish overriding themes of weak world values and lack of a US crop threat are still in place. Russia’s Grain Union says only 4% of winter grains are in bad condition. Stats Canada will release their update later this morning with all wheat acres expected at 26.7 million, compared to 27.028 million last year. Spring acreage is expected at 19.3 million acres, slightly down from 19.475 last year. Minimal rains are expected in the southern Plains this week. A 15-million-bushel reduction in US exports was the only change in the US balance sheet for 2023/24, which pushed up ending stocks 15 million bushels to 673 million, compared to pre-report estimates of 658 million.


The bulls may receive faint encouragement by the April hogs’ apparent rejection of last week’s lows on Friday, but the lower slaughter pace last week suggests a slowdown in packer demand, and the large net long held by the funds leaves the market vulnerable to heavy selling if support levels are taken out. In the monthly supply/demand report on Friday, USDA raised its forecast for 2024 US pork production to 27.910 billion pounds, from 27.880 billion in February and 27.301 billion for 2023. Production is expected to decline by 535 million pounds in the second quarter, which is in keeping with the seasonal trend, but it would be the third largest decline for that period in the last 20 years. The CME Lean Hog Index as of March 6 was 81.48, up from 81.31 the previous session and 80.15 the previous week.


April cattle’s lower close on Friday lower after failing to follow through on a breakout rally earlier in the session may pressure the market early this week, but it does not alter the fundamentally bullish posture emanating from the tight supply. In the monthly supply/demand report on Friday, USDA increased its forecast for US 2024 beef production to 26.393 billion pounds from 26.253 billion pounds in the February report. This was still down from 27.032 billion for 2023. US beef production is expected to increase by 85 million pounds in the second quarter, which is smaller than the typical increase for that period, but it is the largest increase since 2019.


Since mid-February, cocoa prices have twice followed sharp selloffs with recovery moves that reached new record high levels. With little relief from West African supply issues, cocoa should climb up again into record high territory again this week. May cocoa rebounded from a 1-week low but could not climb into positive territory as it finished Friday’s trading session with a sizable loss. For the week, however, May cocoa finished with a gain of 69 points (up 1.1%) which was a third positive weekly result in a row.


Coffee’s failure to sustain last Thursday’s upside breakout does not bode well for prices early this week, but the market has made sizable recovery moves from spike lows in mid-January and late February. With an improving demand outlook, coffee prices should hold their ground above the early March lows. May coffee pivoted back to the downside as they finished Friday’s trading session with a heavy loss. For the week, however, May coffee finished with a gain of 1.90 cents (up 1.0%) which was a second positive weekly result in row.


May cotton has continued its volatile action in the wake of the move to contract highs in late February. US old crop supplies are very tight, but world supplies are not, and the US may have priced itself out of the market. Friday’s USDA supply/demand report showed US 2023/24 ending stocks at 2.50 million bales versus an average trade expectation of 2.72 million. This was below the low end of the expected range of 2.55 to 2.9 million and it was down from 2.8 million in the February update. It was also down from 4.25 million in 2022/23 and was lowest since 2013/14.


Sugar has been under pressure for several weeks as the May contract reached an 8 1/2 week low on Tuesday. The market has lifted clear of last Tuesday’s low and should see upside follow-through early this week. May sugar kept within a tight inside-day trading range before finishing Friday with a moderate loss. For the week, however, May sugar finished with a gain of 0.06 cent (up 0.3%) and a positive weekly reversal.

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