The Dollar remained on the defensive as it reached a new 2 1/2 week low before finishing Friday’s trading session with a sizable loss. Positive comments from officials that progress was made on new fiscal stimulus weighed on the Dollar as it fueled safe-haven outflows. The Canadian Dollar posted a sizable gain as it benefited from a set of stronger than expected Canadian unemployment data. While the dollar appears to have rejected a fresh new low for the move early this week, it would not appear as if the reversal is fundamentally based. It is possible that the dollar rebounded slightly because of Bank of China intervention to arrest the climb in its currency.
The trend in the euro looks to remain up again this week despite discouraging news of a 100,000 single day infection count on the European continent. While there will be several potential market driving speeches from European and UK central bankers, we doubt anything substantial will be offered. German wholesale prices for September were unchanged and down 1.8% on a year-over-year reading, thereby offering up a bit of deflationary headwinds for the euro. The Commitments of Traders report for the week ending October 6th showed Euro Non-Commercial & Non-Reportable traders net sold 7,973 contracts and are now net long 228,127 contracts.
The Treasury markets were unable to benefit from uncertainty in Washington as they could not climb into positive territory as they finished Friday’s trading session with mild losses. There are increasing chances that some sort of pandemic relief and fiscal stimulus will be approved by the US government, and that led to significant safe-haven outflows from Bonds and Notes. In addition, the Fed’s Evans said that there will be more Fed asset purchases if the recovery is slower, and that helped to keep further losses in check. With a US bank holiday Monday, the trading range in treasuries should be slightly narrower than expected mostly because of the lack of scheduled economic data but also because of the markets propensity to track within a range over the prior five trading sessions.
The major US equity indices maintained upside momentum as they reached new 1-month highs before finished Friday’s trading session with sizable gain. There were positive comments made over fresh fiscal stimulus measures, and that provided underlying support to US stocks. In addition, the Fed’s Barkin said that the Fed continues to do what it can to provide support which further strengthened US equity markets going into the weekend. Global equity markets at the start of the week were higher with the CSI 300 topping the list with gains of 3.03% and the Tokyo market one of the few losers with only minimal declines. Apparently global equity markets were cheered by positive leadership from Chinese equity markets but also because the Chinese President hinted at added stimulus with a directive to make southern China a major technology hub. As for the US stimulus package situation, the US President has now called for a larger stimulus package than the packages offered up by both sides of the aisle in Congress and that gave the US market its early upward bias.
GOLD, SILVER & PLATINUM:
While the gold market fell back from its early-week high, the market did manage a fresh higher high for the move and the highest price since September 21st and that would seem to indicate the path of least resistance remains up into the start of the new trading week. Clearly gold and silver prices are tracking in sync with the equity markets which somehow continue to hold out hope for some form of stimulus package. Fortunately for the gold bulls, ETF’s added to their gold holdings for the 3rd straight day of inflows Friday and that inflow brought this year’s net holdings gain up to 34%. Last week gold ETF holdings increased by 131,496 ounces which in turn is a less than impressive pace. Unfortunately, for the bull camp in silver, silver ETF’s last Friday reduced their holdings by 1.2 million ounces but on the week silver holdings increased by 18.2 million ounces.
While the copper market did not make a fresh higher high for the move early this week, the market is sensing positive economic psychology from China after the Chinese President promised to ramp up efforts to make southern China a major technology hub. It should also be noted that the Shanghai markets were the largest gaining equity markets early Monday with the CSI 300 gaining 3.03% and the Shanghai stock exchange composite gaining 2.64%. Therefore, the Chinese copper demand outlook is positive with the potential for a US stimulus package still providing some support. On the other hand, the trade is beginning to take note of the gains in the Chinese currency which in turn should make China’s purchase of commodities much more attractive and that bodes well for copper.
Apparently, the lost production from last week’s hurricane has been discounted with crude oil prices falling back from last week’s rally and temporarily touching the psychologically important $40.00 level in the December crude oil contract. Certainly, seeing 91% of US Gulf of Mexico production off-line from the latest hurricane will provide some receding support for prices especially with a third straight day of Gulf of Mexico shutdowns yesterday and offshore output thought to be down by 1.69 million barrels per day. In short, there could be enough supply uncertainty to offset a modest amount of economic disappointment from last week’s developments. On the other hand, a key supply support from last week has been removed with the Norway strike solved and that bearish news is accentuated by news that global crude oil in floating storage remains 140% above year ago levels.
While the natural gas market added significantly to last week’s upward surge in prices early today, prices has recoiled and appear to be poised to fill the gap opening with a trade back down to $3.2630. While not as significant as in petroleum, Gulf gas production was off 62% or 1.68 BCF per day from hurricane Delta. Going forward, the big question for traders today is how quickly those platforms will be brought back on-line. Certainly, the category 3 winds damaged some facilities, but we would be surprised if those damages result in more than a few days of lost output. On the other hand, settling the Norway strike undermines international gas prices, US weather forecast is neutral to slightly bearish and the petroleum markets are offering spillover selling early on.
With ending stocks pegged at just 290 million bushels, as long as demand stays strong, and there is some supply uncertainties for both US and South America yields, the market is likely to find good support as this leaves little leeway for any future demand or supply developments. There is still no technical sign of a short-term peak and the market seems to have absorbed some of the positive news from the USDA update. Until traders are more confident in getting the Brazil crop planted, the market may find support on technical corrections. The market closed higher and has made contract highs for four sessions in a row.
The USDA report news was mostly neutral and with the overbought technical set-up, December corn looks vulnerable to a correction. Strength in soybeans, the weak US dollar and Brazil crop concerns due to dry weather for plantings helped to support the higher close on Friday. US Corn ending stocks for 2020/21 ending stocks are estimated at 2.167 billion bushels, down from September’s 2.503 billion. This is above the average estimate but in the range of 1.859-2.333 billion. Yield is estimated at 178.4 bushels/acre which was revised down slightly but a bit higher than expected. Harvested acreage was revised down 1 million acres to 82.5 million acres and below the estimated range of 82.7 to 83.7 million acres. Production is estimated at 14.722 billion bushels.
The technical action turned bearish on Friday and the USDA data was also a negative. However, there is still no rain in the five day forecast for much of the winter wheat belt, and the 6-10 day is also dry. Will the dryness be significant enough to fuel the market even higher? The weekly crop progress report will be out Tuesday due to Monday’s holiday. The October USDA Supply/Demand report pegged 2020/21 US wheat ending stocks at 883 million bushels which was within the range of pre-report estimates (830-917, average 890). In the class breakdown, hard red winter wheat ending stocks come in at just 334 million bushels, from 385 million in the September report and from 506 million bushels last year and 516 million bushels two years ago. This is supportive for the KC wheat relative to the other wheat markets. Soft red winter wheat ending stocks were adjusted down to 102 million bushels, from 108 million in September 105 million last year and 158 million 2 years ago.
With the large discount to the cash market, the market looks to be well supported as long as China demand for US pork remains strong. China prices are in a short-term downtrend, but sales in recent weeks have remained strong. Short-term, it looks like we could see some further upside. Talk of the short-term overbought condition after the recent surge up helped to spark some selling. As long as export sales remain strong, this will keep US supply relatively tight and keep the pork cut-out values firm. The huge discount is providing underlying support. The CME lean index as of Oct 7 was 77.62, up from 77.50 the previous session and up from 76.41 a week before. China’s national average spot pig price was down 3.1% from the previous day. For the month, prices are down 7.1% for the month and down 9.8% year to date and down 13.9% versus a year ago.
Beef prices are at their lowest levels since August 13th, supply appears to be increasing, and the short-term demand outlook is questionable. Futures are holding a premium to the cash market as traders expect to see seasonally strong demand just ahead. However, the virus could cause many of the seasonal demand factors to be diluted during the fourth quarter. Restaurants and caterers typically order aggressively this time of the year as to secure supplies for the busy holiday season. Retail demand for beef has been running strong, but due to Covid, corporate and family events at restaurants and hotels could be down considerably from recent years, which will keep buyers less active. The average dressed steer weight for the week ending September 26 came in at 924 pounds, up from 919 the previous week and 898 from a year ago. This was the highest average weight since November 2015. The USDA boxed beef cutout was down 93 cents at mid-session Friday and closed $1.94 lower at $214.06. This was down from $218.88 the previous week and was the lowest the cutout had been since August 13.
Cocoa prices finished last week on a downbeat note in spite of stronger key outside markets as global demand concerns remain a front-and-center issue for the market. Critical demand-side data late this week will be a source of pressure over the next few sessions, but cocoa is showing early signs that a near-term low may be close at hand. December cocoa pressured by end-of-week long liquidation as they finished Friday’s trading session with a sizable loss. For the week, December cocoa finished with a loss of 50 points (down 2.0%) and a third negative weekly result in a row.
Coffee prices remain far below their early September highs, but they were able to maintain upside momentum following last Wednesday’s outside-day higher. With Brazil’s 2020/21 harvest nearly complete, a shift in focus toward upcoming production in Brazil and Colombia may help the coffee market extend its recovery move. December coffee kept in positive territory for most of the day as it reached a 1-week high before finishing Friday’s trading session with a moderate gain. For the week, December coffee finished with a gain of 2.60 cents (up 2.4%) which was a second positive weekly result over the past 3 weeks.
With new highs for the fourth session in a row, traders are clearly concerned over significant hurricane damage from the recent heavy rains in the US. This, along with a sense of strong demand has helped to keep the market in a steady uptrend. Production fears may peak soon with the supply/demand report and the expected impact of Hurricane Delta to US Gulf coast. Heavy rainfall moved through the cotton growing regions of Louisiana, Mississippi and Alabama. The monthly USDA supply/demand report showed very few changes in the 2020/21 US cotton numbers from the September report versus expectations for tightening supply. The report left production virtually unchanged at 17.05 million bales versus 17.06 million estimated in September and average expectations of around 16.74 million and a range of 16.35-17.03 million.
Sugar prices continue to maintain upside momentum as they have been supported by a bullish shift in Brazilian weather conditions. With the market received fresh evidence of Brazil’s Center-South supply situation over the first half of the 2020/21 season, however, sugar’s potential for further upside price action may be limited at best. March sugar shook off midsession pressure and choppy action late in the day as it reached a new 7-month high before finishing Friday’s outside-day trading session with a moderate gain. For a week in which it had all 5 sessions with positive daily results, March sugar finished with a weekly gain of 68 ticks (up 5.0%) and a fourth positive weekly result in a row.