Last Friday’s European data included a better than expected reading for UK industrial production and an in-line German CPI result, while the only major US economic number of note was a monthly private survey of consumer sentiment that came in below trade forecasts. The Fed’s Collins said that she sees further Fed rate hikes and it is too soon to call a peak in the rate cycle. Treasuries continued to hold their ground within inside-day ranges at the top end of Thursday’s updraft, but were pressured by profit-taking and long liquidation as they closed last Friday’s trading session with mild losses.
The Dollar remained under severe pressure and has reached a 2 1/2 month low before finishing last Friday’s trading session with a second heavy loss in a row. Last Thursday’s US CPI results continue to weigh heavily on the Dollar as they have led many in the market to dial back their Fed rate hike expectations. In contrast, hawkish comments from SNB Chairman Jordan have provided the Swiss franc with strong support as it climbed up to a new 3-month high. The Dollar was able to regain upside momentum early this week, but has only recovered a portion of its Thursday/Friday downdraft as it remains in close proximity to Friday’s 2 1/2 month low.
Global markets started the day with a mildly positive tone, but lost some strength by midsession. News that China has reduced the quarantine period for inbound travelers was seen as a sign that they are relaxing their “Zero Covid” policy, and that gave a significant boost to global risk sentiment. However, news that the FTX crypto bank filed for Chapter 11 bankruptcy triggered another selloff in cryptocurrencies that weighed on risk appetites. US equities continued to see volatile price action late in Friday’s trading session with the Dow Jones continuing to underperform the S&P and Nasdaq.
GOLD, SILVER & PLATINUM:
The euphoria from last week’s CPI number ebbed after Fed Governor Christopher Waller made some hawkish comments in Sydney at the start of this week. The dollar rallied and gold and silver were lower. Waller commented that rates are going to stay high for a while until inflation gets closer to their target. Vice Chair Lael Brainard and NY Fed President John Williams will speak during Monday’s trading. Last week’s milder than expected CPI number has raised hopes that the Fed will moderate its fight against inflation, but the market seemed to get ahead of itself. Gold had its strongest week in 2 1/2 years, and the dollar fell to its lowest level since August.
After gaining 17% since the end of October and reaching its highest level in 4 1/2 months at the start of this week, copper reversed direction and is posting heavy losses early in Monday’s trading session. The market is vulnerable to further long liquidation, but the near-term supply situation remains tight. News that the Chinese government instituted measures supporting for their property sector provided early support overnight, but a weekend spike in new Covid cases has diminished the chances for demand growth.
The petroleum markets saw mixed results at the start of this week with volatile action inside their October/November trading ranges. If there are signs of demand improvement or an improvement in global risk sentiment, crude oil and RBOB gasoline may extend their recovery moves. January crude oil finished Friday with a strong gain, but it gave up early gains and found significant pressure Monday morning. A sharp increase in new Covid cases in China has traders concerned about demand. There are reports that Chinese refiners are pulling back on Russian crude oil purchases. US Treasury Secretary Yellen said that India can buy Russian oil at any price, just as long it does not use maritime services or insurance from Western nations.
The soybean market remains in a short-term consolidation as the short-term tightness is clashing with the outlook for a bumper world crop for the 2022/23 season. The U.S. soybean crush likely jumped in October to the fourth highest on record for any month as processing plants received a flood of newly harvested beans. For the NOPA crush report, traders see crush at 184.464 million bushels of soybeans for October. If realized, this would be up 16.7% from the 158.109 million bushels processed in September and up 0.3% from the October 2021. It would also be the second largest October crush on record, behind only October 2020. Estimates ranged from 175.000 million to 191.343 million bushels. Soyoil stocks are expected near 1.535 billion pounds, up 5.2% from the two-year low of 1.459 billion pounds at the end of September but down 16.3% from the 1.834 billion pounds last year. The range is 1.425 billion to 1.700 billion pounds.
December corn closed moderately higher on Friday but was confined to the lower half of Thursday’s big range down with an inside trading session. Talks between a Russian delegation and UN officials to discuss Moscow’s grievances about the Black Sea grains export initiative were underway in Geneva on Friday. This comes just eight days before the current agreement brokered by the UN and Turkey set to be renewed. A renewal could assure more Ukrainian grain would be available for export.
Wheat prices were higher last Friday on what some traders were describing as bargain hunting after the declines of the previous week. The weather forecast for Kansas continues to be dry. Winter wheat crop conditions are the worst they have ever been for this time of year. The crop can usually recover if there is adequate rainfall in the spring, but the conditions are so bad that analysts fear that this year could be an exception. The Buenos Aires Grain Exchange and the Rosario Board of Trade both lowered their forecasts for 2022/23 Argentina wheat production, as this year’s drought continues to take its toll. Argentina wheat exports this year may come in at half of the previous year at near 7 million tonnes.
The short-term technical picture remains negative for lean hogs, and the setback of the past several days has brought December basis levels back down to more normal levels. As a result, the market could look a bit undervalued on any further technical correction. A jump in pork cutout values on Friday plus the fact that pork production last week was down 3.1% from a year could support the market early this week. Estimated US pork production last week was 534.3 million pounds, down from 551.5 million the previous week and 567.1 million a year ago. The USDA pork cutout, released after the close Friday, came in at $97.03, up $2.61 from Thursday and up from $94.72 the previous week. This was the highest the cutout had been since October 31.
While other markets have presented a very optimistic view on the US economy, the cattle market continues to see a sharp drop in beef prices, as consumers are still likely to shift to other meats or at least lower priced beef cuts. The USDA boxed beef cutout was down $3.72 at mid-session Friday and closed $4.33 lower at $258.94. This was down from $263.75 the previous week and was the lowest the cutout had been since October 24. December live cattle closed lower Friday after trading in a wide range, giving up most of Thursday’s gains in the process. Cash cattle prices were mostly steady with last week. Beef production is not falling off as much as expected, and this could weigh on cattle prices. In this week’s supply/demand report, the USDA raised its estimate of US 4th quarter beef production by 215 million pounds. Beef production last week was up 0.8% from last year.
Cocoa may be setting up for early downside follow-through this week as its November rally ran out of steam. With signs of improving demand and bullish near-term supply developments, however, cocoa prices should remain well supported on a near-term pullback. March cocoa reached 5-month high early in the day, but came under late pressure and fell into negative territory before finishing Friday’s outside-day trading session with a sizable loss and a negative daily reversal. For the week, however, March cocoa with a gain of 88 points (up 3.6%) for a second sizable weekly gain in a row.
While coffee prices were unable to complete a positive weekly reversal, they managed their first back-to-back positive daily results since early October. Although the market will continue to deal with near-term demand concerns, coffee is in a good position to extend a recovery move. March coffee was able to follow-through on Thursday’s outside-day higher close and positive daily reversal with early strength, but came under pressure late in the day as it finished Friday’s trading session with a mild gain. For the week, however, March coffee finished with a loss of 3.55 cents (down 2.1%) which was a sixth negative weekly result over the past 7 weeks.
December cotton closed higher on Friday as a sharply lower dollar and optimism about Chinese demand lent support. The dollar index was sharply lower for the second day in a row and closing 4% lower for the week. China relaxed some of its Covid restrictions, which raised hopes that the Chinese cotton demand would strengthen. The stock market was also higher, which boosts demand expectations. There were also concerns that rains from Hurricane (now Tropical Storm) Nicole would damage cotton crops in Georgia. As of November 6, 51% of Georgia’s crop had been harvested. This suggests there is still a large amount still in the fields and vulnerable to damage from heavy rains.
Sugar prices have seen an abrupt change in fortune during the past 2 weeks as they have regained more than 11% in value since posting a 3 1/2 week low in late October. If key outside market can provide consistent strength, sugar can see a sizable upside extension to this recovery move. March sugar extended its November rally to a new 5-month high before a midsession pullback, but it was able to finish Friday’s trading session with a moderate gain. For the week, March sugar finished with a gain of 93 ticks (up 5.0%) for a second sizable weekly gain in a row.
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