The Treasury markets were able to regain upside momentum as they finished last Friday’s trading session with sizable gains. The November FOMC meeting minutes showed that several members were discussing lengthening the weighted average maturity of Fed Treasury purchases, the FOMC should “enhance” their guidance for asset purchases and that some members were expressing concern in regard to the pace of asset purchases, particularly with agency MBS securities, provided underlying support to Treasuries. The latest Japanese leading economic index, the German Gfk survey, French consumer confidence and Tokyo CPI came in below trade forecasts. While there were better than expected readings for French GDP and French CPI, the latest readings for Italian business confidence and Italian consumer confidence were lower than forecast.
The Dollar remained on the defensive over the holiday break as it reached a new 2020 low before finishing Friday’s trading session with a moderate loss. Improving global risk sentiment led to safe-haven outflows from the Dollar, while reports that the Fed will lengthen their average maturity of Treasury purchased also became a source of pressure. Reports that the EU and UK remain far apart on several issues in their Brexit negotiations weighed on the Pound late this week. The Swiss Franc found fresh support from indications that a Swiss referendum vote this week could result in an inflow of funds back to Switzerland.
Global markets had a bumpy ride to finish out last week, but were able to regain a mildly positive tone by the close of last Friday’s trading session. While reports that EU officials were travelling to London for talks was initially seen as positive, reports that the EU and UK were far apart on several issues weighed on sentiment. In addition, reports that an Iranian nuclear scientist was assassinated caused a modest increase in global risk anxiety. However, early reports on Black Friday sales were better than the market’s dialed-down expectations which provided a boost to several market sectors. As a result, major US equity indices finished Friday in positive territory and were led to the upside by the Nasdaq.
GOLD, SILVER & PLATINUM:
Clearly the gold and silver trade continues to “look through” the unrelenting flare of infections in the US, as prices continue to fall sharply off lofty vaccine expectations. Furthermore, gold and silver prices have continued to fall sharply despite the assistance of a fresh downside breakout in the dollar. While a smattering of countries added to their Central Bank gold reserves in October, the net gains in holdings were in no way significant enough to offset the bearish tide of psychology in the market. Not surprisingly, gold and silver ETF holdings at the end of last week continued to decline with gold ETF’s declining for a 5th straight day and silver ETF’s posting their 9th straight day of declines. While we continue to be amazed in the amount of flight to quality long liquidation in the marketplace (as evidenced by the unrelenting selling during risk on sessions), the market appears to have more long liquidation ahead and perhaps some fresh outright selling in reserve.
The copper market continues to be the “odd man out” in metals and most commodity markets, with prices surging higher despite weakness in equities, signs of renewed US/Chinese tensions and escalating Chinese/Australian tensions. However, the copper market continues to anticipate strong demand from China and the maintenance of generally tight global supply. In fact, LME copper warehouse stocks continue to decline on a daily basis while Shanghai copper warehouse stocks have also consistently declined, thereby leaving total world copper exchange stocks at much lower levels than anyone expected through a global recession period.
Despite stronger than expected Chinese PMI data, a significant downside breakout in the US dollar and expectations that OPEC plus is discussing extending oil production restraint, prices have forged a 3-day low in the early going on Monday. Perhaps the trade is partially undermined as a result of a risk off mood in global equities or from countervailing arguments that OPEC plus has some members in favor of gradually expanding production starting in January. In fact, Russia appears to be in opposition to Saudi Arabia on the length of the extension of production restraint and it is well known that Iraq and the UAE are looking to break ranks with the alliance. While the COT positioning report was delayed due to last week’s US holiday, we suspect that report adjusted into the highs last week will result in the net spec and fund long in crude oil reaching the highest level since August. Underpinning prices to start the week is news that crude oil in floating storage declined by 5.4% last week and in turn reached the lowest level since April.
January soybeans traded lower on the session last Friday, but held minor support and the market rallied to close higher on the day. Dryness concerns for parts of southern Brazil and Argentina helped to support. Weakness in the dollar added to the positive tone. The weekly export sales report showed that for the week ending November 19, net soybean sales came in at just 768,071 tonnes from trade expectations for 700,000 to 1.4 million tonnes. Shipments remained very strong at 2,412,200 million tonnes. Cumulative soybean sales have reached 86.7% of the USDA forecast for the 2020/2021 marketing year versus a 5 year average of 58.9%. Sales need to average 195,000 tonnes per week to reach the USDA forecast.
The upside breakout early this week is bullish and leaves 444 as next upside target. March corn closed sharply higher on the session last Friday with a new high close for the life of contract. Dryness concerns in South America persist, and export news remains strong. On top of the weekly export sales report, exporters reported the sale of 302,160 tonnes of US corn for delivery to Mexico. South Korea bought 60,000 tonnes. The weekly export sales report showed that for the week ending November 19, net corn sales came in at 1,665,614 tonnes which was above expectations. Cumulative sales have reached 62.5% of the USDA forecast for the 2020/2021 marketing year versus a 5 year average of 40.1%. Sales need to average 544,000 tonnes per week to reach the USDA forecast.
The wheat market closed higher with a quiet, inside trading day last Friday. The weekly export sales report showed that for the week ending November 19, net wheat sales came in at 795,698 tonnes. Sales were led by 333,000 tonnes to China which was the largest since March. Cumulative sales have reached 68.0% of the USDA forecast for the 2020/2021 marketing year versus a 5 year average of 63.9%. Sales need to average 209,000 tonnes per week to reach the USDA forecast. Deteriorating crop conditions in the US and southern Russia have helped to provide underlying support. South Korea bought 47,630 tonnes of milling wheat from Australia. Egypt strategic reserves of wheat are sufficient for more than five months according to a government statement.
Traders view the short-term supply as adequate and the sluggish export sales news was enough to spark selling pressures last Friday. However, short-term demand tone remains firm and China prices jumped. Pork net sales for the week ending November 19th were 25,486 tonnes, 18,844 for 2020 and 6,642 for 2021. The 2020 sales were the smallest weekly net sales since August 6th for this marketing year. The 2020 cumulative sales were 1.98 million tonnes versus 1.67 million last year and a five-year average of 1.19 million. Top purchasers for the week were: Mexico at 9,359, Japan at 3,913 and China at 2,470. Shipments for the week totaled 40,935 tonnes which is the highest since May 14th. Total shipments for 2020 are 1.71 million tonnes with 269,374 tonnes outstanding. Shipments to China for the week were 14,415 tonnes which was the largest for the week. China’s outstand sales were 87,413 tonnes. China has the most commitments at 724,082 tonnes, followed by Mexico at 538,770.
With the turn down in beef prices, a continued surge to near record highs for steer weights and continued slow restaurant demand, the market looks vulnerable to at least a short-term downside correction. February cattle experienced choppy trade early Friday but pushed moderately lower on the day into the close. Outside market forces continued to carry a positive tilt, but there is some short-term demand concerns given the active virus cases. The USDA boxed beef cutout was down $1.21 at mid-session Friday and closed $2.21 lower at $242.85. This was up from $237.70 the previous week. This was the first time the cutout had declined since November 13 and only the second time since October 28.
Cocoa’s volatile post-holiday trading was able to avoid an end-of-week pullback and a potential negative weekly key reversal. The market has a 461 point monthly gain going into the final trading session of November, however, so cocoa remains vulnerable to additional long liquidation early this week. March cocoa had a wild finish to the week as it started with a gap-higher opening, dropped down into negative territory and then rallied late in the day to finish Friday’s trading session with a sizable gain. For the week, March cocoa finished with a gain of 54 points (up 2.0%) and a fourth positive weekly result in a row.
Brazil’s near-record 2020/21 crop has been a source of pressure on coffee prices, but the market appears to be shifting focus towards an upcoming production outlook that is significantly more bullish. If global demand prospects continue to mend, coffee is in a good position to extend this recovery move through year-end. After 3 sessions of consolidation, March coffee saw an abrupt change in fortune as it built onto a gap-higher opening and reached a 10-week high before finishing Friday’s trading session with a sizable gain. For the week, March coffee finished with a gain of 6.15 cents (up 5.2%) and a fourth positive weekly result in a row.
March cotton closed higher last Friday but safely inside the week’s range. It did manage to close higher for the second week in a row, however, and it was the highest weekly closed for the nearby contract since April 2019. The trade reacted positively to the weekly export sales report which showed US cotton export sales for the week ending November 19 coming in at 354,689 bales for the 2020/21 (current) marketing year and 38,480 for 2021/22 for a total of 393,169. This was the highest weekly number since September 10 and the second highest since the marketing year began on August 1. Cumulative sales for 2020/21 have reached 9.588 million bales versus 10.121 million last year and 9.517 at this point in 2018. Cumulative sales have reached 71% of the USDA’s forecast for the marketing year versus a five-year average of 60%.
Sugar was able to find its footing after the holiday break, but an inability to sustain an early recovery move on Friday has left the market well below its mid-November highs. With sugar still on-track for a seventh monthly gain in a row, the market remains vulnerable to additional long liquidation early this week. March sugar found significant support early in the day, and then proceeded to give back most of those gains as it finished Friday’s trading session with a modest gain that nonetheless broke a 5-session losing streak. For the week, however, March sugar finished with a loss of 39 ticks (down 2.6%) which broke a 3-week winning streak and was only the second negative weekly result since early September.
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