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Wkly Futures Mkt Summary Mar 18.24


The Treasury markets have maintained a tight coiling price pattern as Bonds and Notes are finding mild pressure early this week. With significant market events later in the week, there may be little motivation for a sizable move in prices. Global equity markets found a positive tone following better than expected Chinese economic data, and that could weigh on Treasuries. While the CME’s Fed Watch tool is projecting only a 1% chance for a rate cut at Wednesday’s FOMC meeting, the Fed’s quarterly economic projections will provide clues on upcoming policy moves.


The Dollar has kept within a tight range for a second session in a row early Monday ahead of the FOMC meeting notes on Wednesday. The prospect of a rate cut at Wednesday’s FOMC meeting has fallen to just 1%, and there is an increasing chance that the Fed may adjust their December projection of cutting 75 basis points this year down to only 50 basis points. Recent US economic data has produced mixed results, but the mild uptick with the latest inflation readings may become the front and center issue for Fed members at this week’s meeting. The Yen fell to a 1 1/2 week low in front of Tuesday’s Bank of Japan policy meeting as they have been preparing to shift its policy towards increasing rates, and this could mark a major low for the Yen. The Euro has shaken off mild early pressure following an in-line Euro zone CPI reading, but further gains should be held in check in front of Wednesday’s FOMC meeting. The Canadian dollar has held its ground above last Friday’s low and may receive a boost from a likely uptick in Canadian IPPI later this morning.


Global equity markets started out an eventful week with a mostly positive tone. A set of critical Chinese economic numbers were highlighted by better-than-expected readings for industrial production and retail sales. European data included an in-line reading for February Euro zone CPI. US equity markets have found their footing after their pullback late last week, although gains have been muted in front of Wednesday’s FOMC meeting results. Several Dow components are financial services firms which would be impacted by the Fed pulling back on rate cuts this year. The Nasdaq has found decent early support as Tesla shares have rebounded from Friday’s 11-month low while the market has shaken off Adobe’s negative guidance from late last week.


With several critical central bank meetings this week, gold and silver are finding mild pressure early in this week’s action. The precious metals saw mixed results on Friday as gold could not shake off mild early pressure by the close, while silver rallied to a 3 1/2 month high. A mixed tone in recent US economic data has led to uncertainty over the Fed’s rate cut outlook this year. The Dollar continues to hold close to an early 1 1/2 week high, and that is weighing on precious metals prices. The PGM metals have found little benefit from strong Chinese economic data as both are under early pressure this week.


Copper prices are starting out under mild early pressure after rising 4.9% from Wednesday through Friday, hitting a 12 1/2 month high, as the market is starting to reflect tight near-term global supplies. LME copper stocks have only had six daily builds over the previous 55 readings and have fallen to their lowest levels since early September. Expectations of a Chinese economic rebound has provided support to copper recently. While the latest Chinese industrial production reading was higher than expected, that has been offset by a sharp increase in Shanghai exchange copper stocks over the past four weeks.


Crude oil prices have built onto last week’s 4% rally and traded up to their highest level since October. Stronger than expected Chinese factory output data provided early support. There are supply-side concerns with more Ukrainian drone attacks on Russian infrastructure over the weekend. Vladimir Putin won the Russian election over the weekend and vowed to retaliate against Ukraine for the continued drone attacks on key infrastructure. By some accounts, as much as 7% of Russian refining capacity has been idled during the first quarter. A strong early showing in crude oil, fresh geopolitical concerns and a supportive outside market tone provide initial support. Natural gas prices climbed higher early this week with the May contract approaching last week’s high at $1.961.

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With 9 trading sessions left before the March Quarterly Stocks and Acreage Intentions report, weather will be the major focus for traders this week. Rains in southern Brazil are not ideal with harvest ongoing, but more importantly, after a dry week this week, rains are forecast for the central Midwest, including Iowa, by early next week. Subsoil moisture improvement is needed before spring planting.


Brazil rains are on tap late this week and that may offer a bearish headwind to offset the positive technical picture. In addition, rains for the dry areas of the central Midwest are forecast for this coming weekend, including Iowa. Midwest temperatures for the next 2 weeks are expected to be below normal, which will limit early planting ideas. China’s February imports of corn were 2.6 million tonnes, down 15.7% year-over-year. Ukraine’s farm ministry forecast corn planted area to fall to 3.863 May and hectors, down from 4.043 million last season.


Wheat prices are finding support on the Russian attacks on the Odessa port and below normal temperatures coming into the northern Plains. Ukraine and Russia are getting more aggressive with their infrastructure attacks and the port of Odessa suffered damage to agribusiness facilities there over the weekend, but to what degree is not yet known. The EU is mulling concessions to protesting farmers and is considering a ban on Russian agriculture imports into the EU.


With April hogs sharp rally on Friday, the 3 1/2 month uptrend has resumed and the path of least resistance looks higher. Pork cutout is the highest it’s been since early October. A stronger seasonal price trend is typically seen into summer and that may provide underlying support on breaks. The CME Lean Hog Index as of March 13 was 82.19, up from 82.02 the previous session and 81.48 the previous week. The USDA estimated hog slaughter came in at 444,000 head Friday and 137,000 head for Saturday. This brought the total for last week to 2.479 million head, up from 2.456 million the previous week but down from 2.492 million a year ago.


After the significant reversal lower last Thursday, it is a bit surprising cattle prices did not follow through to the downside Friday, but stronger cash trade supported the market. The month-long consolidation remains intact and important moving average support stands at 185.45 on April. The sideways/higher trend is still in place. The USDA estimated cattle slaughter came in at 113,000 head Friday and 15,000 head for Saturday. This brought the total for last week to 601,000 head, up from 583,000 the previous week but down from 628,384 a year ago.


Cocoa prices continue to reach unprecedented heights, as tight supply and forecast for large global production deficits have sparked panic buying. May cocoa gapped higher Monday morning and traded to another new all-time high, just short of $8,500. Reports that West African farmers are starting to hoard cocoa beans has compounded an already tight supply situation in the region. Several processing plants in Ivory Coast and Ghana have had to shut down operations due to a lack of beans to crush.


May coffee is higher this morning but is trading inside Friday’s range. Dry weather this year in Brazil’s key coffee growing region has provided underlying support for the coffee market, but this has been limited by forecasts for a large global surplus next year and a steady increase in ICE exchange stocks. Last week, Rabobank forecast a global coffee surplus of 4.5 million bags for 2024/25, up from a surplus of 500,000 bags for 2023/24. On Friday, Marex Group called for a 6.6 million-bag surplus.


The cotton market could be headed for more consolidation, as traders will be reluctant to push the market too much lower ahead of spring planting. The market’s focus could soon shift to the upcoming USDA Prospective Plantings report due out next Thursday, March 28. The USDA Outlook Forum in February forecast 2024/25 plantings at 11.0 million acres versus 10.23 million last year and 13.75 million the year before that. 11.0 million planted would be the second smallest since 2016/17. Last year’s harvested acreage was only 7.06 million, which was the lowest on record going back to 1960/61.


May sugar pushed above the 50-day moving average Monday morning, which keeps the uptrend off the March low intact. Analysts have been lowering their forecasts for Brazil’s upcoming (2024/25) sugar production due to dry conditions since late last year. Brazil’s Center-South production for the current (2023/24) crop is about 26% ahead of last year. New-crop harvest is expected to begin late this month or early next. Fitch Solutions said on Friday that prices are being supported by reports of decreased sugar cane plantings in key Indian states as well as the anticipated reduction in output from Brazil.

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