Written Commentary
BONDS:
With a major range up explosion in treasury prices last Friday, it is clear the much lower than expected nonfarm payroll gain convinced even more traders that the Fed was not leaning in favor of hiking rates. Furthermore, bonds were supported by some minimal relief on hourly wage pressure, but it could take additional signs of slowing and signs of softer inflation to bring June bonds above downtrend channel resistance of 117-17. Obviously, the path of least resistance in treasury prices remains up early this week with the recovery off the April spike low reaching 3 1/2 points in bonds.
CURRENCIES:
The dollar index last week posted a massive three day high to low slide of nearly two full points after markets saw a tempering of US rate “hike” prospects from Fed dialogue. However, the US inflation threat remains in place but temporarily tamped down thereby allowing the bear camp to pressure the dollar perhaps down to the 104.00 level in the June contract. A minimal support for the dollar and pressure for the euro came from an ECB official who suggested there could be 3 rate cuts this year.
Apparently, the currency trade thinks the ECB is more likely to cut rates sooner than the US Fed and expects the ECB to cut rates more than the US Fed this year. Despite the interest rate differential edge, the dollar has suffered significant damage on its charts and we get the sense that the trade is set to overemphasize the prospect of rate cut hopes from the softer than expected US payroll reading last Friday.
STOCKS:
With a higher high for the move last Friday, the stock market has shifted sentiment from short covering to outright buying. In retrospect, the market sentiment improves with selective reasoning as widespread fears of a loss of Apple’s Chinese market share and earnings at deflated levels, and because of the largest ever stock buyback program ever for Apple shares. While we think the significant upside market reaction to a tempering of US rate hike prospects is questionable, the jobs data Friday increases the chance that the Fed is solidly on hold for the near-term. Global equity markets were higher at the start of this week except for the markets in Japan and Russia. Clearly the Dow Jones is being lifted by Apple shares with the company displaying very lofty AI return potential last week and promising to reduce costs significantly in the pursuit of AI revenues.
GOLD, SILVER & PLATINUM:
With relative calm in the Middle East apparently poised to end soon with an Israeli attack of the southern Gaza city of Rafah, it is not surprising to see gold and silver leap higher to start the new week. While news coverage of the markets suggests gold is rising off US rate cut hopes for later this year, we suspect rate cut hopes are a minimal portion of the fuel for this week’s early gains. Classic demand signals were present with the Perth Mint April gold sales doubled from March sales while silver sales declined to their lowest level since December. Unfortunately for the bull camp, strong Perth Mint gold sales were offset by an outflow from gold ETF holdings of 110,591 ounces on Friday and a total outflow last week of 409,098 ounces.
COPPER:
With the reversal/recovery on Friday extended aggressively at the start of this week, the copper trade has found renewed vigor and could test contract highs later this week. Apparently, Chinese treatment charges have increased but remain “negative” which seems to imply the reduced smelting capacity in China will remain off-line for now. Reports from China suggest Chinese smelters are turning to local scrap copper which have seen a significant increases in supply in the wake of this year’s dramatic appreciation in LME and international prices. In fact, the explosion in global prices is thought to be drawing out Chinese refined copper exports. Last week the trade estimated Chinese smelters could export 50,000 tonnes of copper this month.
ENERGY COMPLEX:
Despite the large slide in prices over the last week, many global oil exporters have raised June prices to customers. Saudi hikes are typically the most important price signal, but several other Middle East exporters and the Brazilian national oil company have raised prices for June delivery. With the crude oil net spec and fund long positioning already modest before last week’s $6.00 washout, the crude oil market should see stop loss selling slow or halt. In fact, with international aid agencies preparing for an Israeli attack of a southern Gaza city, the dollar falling aggressively at the end of last week, and June crude oil reaching what has been a notable consolidation support level at $78.00 in the past, the risk to fresh shorts has increased. With a wild two-sided range on Friday culminating with a very poor close and little in the way of solid support until $2.50, the gasoline market remains vulnerable to more aggressive selling.
BEANS:
Media reports of the dire situation in Rio Grande do Sul due to the severe flooding, the worst in 83 years, are keeping the focus on the overall uncertainty over the size of the South American crops, which favors the bull camp. Prior to the flooding, Rio Grande do Sul was on track to be the second-largest bean producing state in Brazil. Frost in Argentina last Friday also adds another unknown for traders to think about as the growing season may have ended early for some immature beans.
CORN:
Corn prices had a strong technical performance last week, finally closing slightly above the upper boundary of the long sideways range. Although rains are in the forecast this week for the central and eastern corn belt, the 6 to 10 day outlook shows below normal precipitation for most of the Midwest which may offer some pressure to start the week. However, severe flooding in Rio Grande do Sul in Brazil, the 6 largest corn producing state, as well as frosts in Argentina ending the growing season early for a small part of the crop that was not yet mature, in addition to the leafhopper infestation, increases the uncertainty over South American crop size and will be supportive to pullbacks.
The CDC is warning dairy workers they may be at risk of contracting bird flu and recommend protective gear for those in close contact with cattle. Furthermore, Canada has toughened livestock import regulations and imported cattle must now have a negative bird flu test. Argentina’s transit workers will go on strike today for 3 hours to protest the labor reform bill going through the Argentine Senate next week.
WHEAT:
Unexpected rainfall over the weekend in far Southwest Kansas resulted in some market pressure to start the week. However, the dry areas of the Black Sea region will only see very limited improvement over the next 10 days, which will keep shorts on edge. April precipitation in Southwest Russia was the lowest in 10 years. EU wheat hit a four-month high Friday, while both Chicago and KC wheat tested last week’s highs. Central Oklahoma and Texas saw beneficial rains over the weekend and widespread thunderstorms are expected later today, which will relieve some HRW stress and leave roughly 25% of the crop to dry.
HOGS:
June hog prices have already fallen 10% from the contract high in April, and the pace of selling has slowed since the big selloff on Wednesday, but Friday’s Commitments of Traders report suggested there could still be a significant long liquidation threat. The report showed managed money traders were net sellers of 7,008 contracts for the week ending April 30, reducing their net long to 85,379. This data was collected prior to the collapse in prices last week, so we suspect the fund net long is currently smaller than the report indicated. Nonetheless, the net long was still in the vicinity of the record 92,731 from April 9.
CATTLE:
The approach of summer grilling season should mean more active beef demand, but support for prices has been undercut by expectations for ample supply due to heavy cattle weights. The USDA estimated cattle slaughter came in at 619,000 head last week, up from 613,000 the previous week but down from 621,000 a year ago. The estimated average dressed cattle weight last week was 848 pounds, unchanged from the previous week but up from 819 a year ago. It was these heavy weights that brought beef production to an estimated 523.9 million pounds last week, up from 507.3 million a year ago. The USDA boxed beef cutout was $1.30 higher on Friday at $294.20 but down from $297.14 the previous week.
COCOA:
Cocoa’s turnaround on Friday was the second recovery from a massive intra-day loss into positive territory over the past four sessions, as well as its largest daily gain since April 24th. Although the market is still 30% below the mid-April record high, cocoa prices are likely to see upside follow-through early this week. July cocoa rebounded from a 7-week low to finish Friday’s trading session with a sizable gain and a positive daily reversal. For the week, however, July cocoa finished with a massive loss of 2,449 points (down 23.1%) which was a second negative weekly result in a row following a 9-week winning streak. A key factor in cocoa’s rebound came from the major US chocolate maker Hershey who reported better than expected quarterly earnings and revenues.
COFFEE:
Coffee prices have been unable to find their footing during May as they continue to be pressured by bearish supply developments. With the near-term demand outlook providing little if any support, coffee is likely to remain on the defensive early this week. July coffee could not hold onto early gains as fell to a 4-week low before finishing Friday’s trading with a heavy loss. For the week, July coffee finished with a loss of 23.25 cents (down 10.4%) which was a second negative weekly result in a row following coffee’s 5-week winning streak.
COTTON:
An outside reversal higher in July cotton last Friday could provide the market with some support. July fell to its lowest level since November 2022 on Friday, down 27% from the contract high from February. The market seems to have has been drained of any sort of weather premium, which may be a bit risky at the start of the growing season. We may also see some choppy action ahead of Friday’s monthly USDA supply/demand report, which will have the first official US and world numbers for the 2024/25 marketing year. The March USDA prospective plantings put US cotton plantings this year at 10.67 million acres, up from 10.23 million last year but down from 13.75 million two years ago. This would still be the second lowest since 2016/17.
SUGAR:
Sugar prices continue to have trouble sustaining upside momentum as they remain in the bottom portion of last Monday’s trading range. With the market continuing to be weighed down bearish supply developments, sugar prices may be setting up for a downside breakout from its late April/May consolidation zone. July sugar continued to see coiling action as it shook off early losses, only to lose strength late in the day to finish Friday’s trading session with a mild gain. For the week, July sugar finished with a gain of 0.19 cent (up 1.0%) which broke a 4-week losing streak.
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