In retrospect we see the recovery bounce in US treasuries last Friday as primarily technical short covering and to a lesser degree a pause in bearish fundamental news flow. In fact, US economic data was generally supportive of growth and indicative of softer inflation than the prior month. However, the ISM services prices paid reading remains at levels concerning to the Fed and a persistent shift back toward a jumbo rate by the Fed later this month could make the 122-00 level in June bonds solid fundamental value. Furthermore, after a 12-day slide in bond prices, a noted corrective bounce is to be expected.
While the magnitude of last week’s decline was played up by financial press outlets to be a significant development, the charts this week were more consolidated than directional. Nonetheless, dollar bulls should be very disappointed with the action in the dollar this week following several positive readings from the jobs front (especially ahead of next week’s monthly payroll readings) and with some signs of lingering inflation. With the dollar range very narrow at the start of this week, and that action following directionless trade over the prior 7 trading sessions, the currency markets start the new week without a definitive leadership currency. With US factory orders slightly beating expectations, that could set the dollar up for a test of last week’s low.
Seeing the euro tracking positive early this week in the wake of indecision in the dollar trade is not surprising and perhaps not a reliable indicator of more euro gains straight ahead. With the Yen touching the downtrend channel resistance line from the early February highs and falling back, the currency probably corrected the oversold condition into last week’s low. While it is difficult to know for sure, the strong range up extension in the Swiss franc early this week might have been attributable to ongoing hot Swiss consumer price inflation readings. With the Pound near a critical downtrend channel resistance line, upside action might be limited. After the upside spike high reversal last Friday the 3-day recovery effort in the Canadian dollar appears to have stalled.
Apparently US equity markets benefited more than expected from positive global equity market tailwinds late last week, However, US scheduled data was seen by some economists as “Goldilocks” readings as in ISM services prices paid measure fell relative to the prior month and US ISM services employment index was strong providing hope that this week’s monthly national jobs reading would be positive. Global equity markets generated more gains than losers at the start of this week with the Chinese markets and the FTSE 100 posting half percent declines.
With a higher high for the move, the S&P has forged a very significant recovery bounce from last week’s lows and that has given investors initial hope that the markets have forged an early March value zone level capable of supporting prices ahead. The Dow managed a higher high for the move despite generally bearish analyst weekend business program coverage with some analysts warning that defensive stocks may offer little protection ahead. Seeing the NASDAQ post an upside new high for the move extension this morning, following news of price reductions in key Tesla models indicates the market is leaning bullish to start.
GOLD, SILVER & PLATINUM:
While the initial high in April gold early this week failed to take out the Friday high, prices remain significantly above last week’s low and near the highest level since February 15th. Both gold and silver could have been undermined because of the Peoples National Congress meeting in China failed to present a major stimulus package. While there was a lack of definitive flows in gold ETF holdings last week, holdings increased by 49,406 ounces, while silver ETF holdings increased by 998,372 ounces. In a negative overnight psychological headline, gold demand was questioned by a survey in India which indicated 65% of Indian women think housing investments are more important than gold investments. In retrospect, gold and silver bulls were extremely fortunate last week that bearish outside market influences did not send prices reeling to the downside.
The silver market action has been significantly less impressive than gold action since the late February low, but the bull camp has regained a slight edge.
While a portion of the gains off the late February low in platinum were likely classic short covering from the sharp January through February high to low slide of $217, the platinum market is very likely benefiting from persistent improvement in Chinese economic expectations. The most positive thing that can be said about the palladium market is the capacity to reject last week’s spike low and began to build consolidation around the $1,400 level on the charts.
With the copper market finishing last week on a back foot and sitting $0.15 below the high of the week early this week, the market does not appear to be impressed with Chinese growth projections from a national party meeting. Not surprisingly, talk of improving Chinese economic conditions has lost its directly positive impact on copper prices. In fact, copper failed to benefit from a trend reversing decline in weekly Shanghai copper warehouse stocks last Friday of 11,475 tons. However, the moderate decline last week followed nearly 2 months of extremely large weekly inflows.
Not surprisingly, crude oil prices have started off under noted pressure today following disappointing Chinese growth projections from a National Party Congress. With the Chinese planning conference projecting growth at only 5% in the kickoff to its annual government meeting, targeting growth significantly below the growth expected in India, the intensive focus on Chinese demand could be moderated. On the other hand, the Saudis have increased their oil prices to Asia more significantly than in other areas. Apparently, energy demand concerns are also being raised by expectations of hawkish US Fed reserve testimony tomorrow. Fortunately for the bull camp weekly crude oil in floating storage declined by 6.1% but support from that news is mitigated from significant gains in storage in Asian-Pacific and European facilities.
Like the crude oil market, the gasoline market surprised the trade with a sharp large range up extension last Friday with optimism once again originating from Chinese economic growth expectations. While the diesel market managed to forge a higher high for the move last Friday, it continues to lag crude oil and gasoline which is not surprising considering strong possibilities that the northern hemisphere winter will end up consuming very little heating oil.
May soybeans closed moderately higher on the session last Friday and the market has already bounced as much as 47 1/4 cents from last week’s low. On the other hand, the market failed to close above 1522 1/4 which might be considered a slight negative. Traders expect further losses out of Argentina due to recent weather, and this might support nearby meal prices, but the market still faces record production from Brazil and a record soybean crop from the US this summer. Traders believe the Brazil crop is near 43% harvested from near 55% last year. The portion of the Argentina crop rated poor or very poor increased to 67% from 56% two weeks prior.
The Buenos Aires Grain Exchange is expected to lower its forecast from the current 33.5 million tonnes, which itself is down from 48 million tonnes at the beginning of the season. For the USDA supply/demand report this week, traders see the Argentina crop near 36.8 million tonnes, 32-40 range, as compared with 41 million tonnes last month.
May corn closed moderately higher on the session Friday and the buying pushed the market up to a three session high. However, the market closed 9 1/2 cents lower on the week. Talk of the oversold condition of the market and a strong advance for meal and soybeans helped to support. In addition, weakness in the US dollar and strength in metal markets and energy markets helped to support. Brazil has enabled 90 companies to export corn to China in the first two months of the year, the agriculture ministry. The total number of companies that have clearance was raised to 446. The outlook for a record corn crop could allow Brazil to surpass the US as world’s top corn shipper.
The wheat market remains in a deeply oversold condition but there is still no technical sign of a low, and the market lacks the type of fundamental news which might spark short covering. The USDA supply/demand report does not seem to have the type of data which could spark a significant rally. Traders see US ending stocks near 574 million bushels, 557-612 range, as compared with 568 million bushels last month. Traders see world wheat ending stocks near 269.3 million tonnes, 267.0-271.3 range, as compared with 269.3 million tonnes in the February update. May wheat closed slightly lower on the session Friday with a fairly small range and this left the market with a loss of 12 1/2 cents for the week. Talk of the oversold condition of the market helped to spark an early bounce but even with a positive tilt to outside market forces, the market closed lower.
April Lean Hogs remain in a downtrend with the potential for more downside ahead. They continue to carry a higher-than-normal premium to the cash market while the supply fundamentals suggest they should hold a smaller than normal premium or no premium at all. US pork production in the first quarter is expected to come in 1.5% higher than last year. It is also expected to be 91 million pounds higher than the fourth quarter of 2022. Pork production normally declines 100-300 million pounds during this time of year. This year will be only the second time production has increased in the first quarter since 1976. In other years when production has increased or declined only slightly, futures markets have tended to move lower.
The cattle market seemed to have the demand export news to turn down late last week but the technical action is positive. Brazil’s agriculture ministry said that the World Organization for Animal Health confirmed that a case of mad cow disease was deemed “atypical,” according to a statement. Atypical means the disease was found to occur naturally in a single animal that is nine years old with all health measures applied, and this could cause a quick recovery in Brazil exports to China. April cattle closed sharply higher on the session Friday and even took out Thursday’s high. Ideas that the beef market and the cash market remain in a steady uptrend, plus talk that beef production is still coming in well below last year are factors which helped to support. The steady rise in open interest would suggest that long liquidation is a threat but not ongoing.
While the cocoa market lost more than 80 points in value over the past 2 sessions (down 2.8%), it held above its late February lows and avoided a negative weekly key reversal. If global risk sentiment and key outside markets continue to improve, cocoa may be able to regain upside momentum early this week. May cocoa remained on the defensive as it reached a new monthly low before finishing Friday’s trading session with a second sizable daily loss in a row. For the week, however, May cocoa finished with a gain of 12 points (down 0.4%) which was a second positive weekly result over the past 3 weeks.
Coffee prices have lost 15.5 cents in value (down 8%) during the past 7 sessions as market concern over Brazil’s upcoming crop have eased. While there may be some improvement on the demand front, coffee is likely to extend this current pullback early this week. May coffee was unable to shake off early pressure and fell to a 2-week low before finishing Friday’s trading session with a sizable loss. For the week, May coffee finished with a loss of 9.85 cents (down 6.2%) which broke a 6-week winning streak. There is a wide range of forecasts for Brazil’s 2023/24 Arabica production, but improved weather since the start of this year have led to a growing consensus of opinion that Brazil will avoid the normal output decline that occurs with an “off-year” crop.
May cotton closed moderately higher on Friday but down 73 for the week. The dollar was lower, and the stock market and crude oil were higher on Friday, all of which was supportive to cotton. The trade was disappointed with last week’s export sales report, which showed net sales of 267,823 bales for the week ending February 23, down from 437,202 the previous week. To keep things in perspective, the previous week’s number was the highest since last May, and last week’s number was the second highest since September. For this week’s USDA supply/demand report, the average trade expectation for US 2022/23 ending stocks is 4.26 million bales, with a range of expectations from 4.05 to 4.50 million. This would be down from 4.30 million in the February update.
Sugar prices have been unable to shake off recent whipsaw price action, but finished last week with an upside breakout to a new 6-year high. If near-term supply remains tight, sugar extend this current rally further into new high ground. May sugar extended their coiling two-side action by building on early strength and reaching a new 6-year high before finishing Friday’s trading session with a very large gain. For the week, May sugar finished with a gain of 125 ticks (up 6.4%) which broke a 2-week losing streak and was the largest weekly gain by the May contract.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.