On one hand, treasury prices did show some positive action late last week in the wake of a series of soft US scheduled data points and in the wake of a very strong 30-year bond auction, but given the inability to sustain rallies and migrate away from oversold levels, the bull camp should be discouraged. In fact, given the lack of punishment for those short in the face of soft data, the bear camp should be emboldened going forward. While equity prices were positive early this week and signaling some residual optimism, scheduled data released outside of the US contributed to the view that the global recovery is decelerating. Furthermore, surging infection rates in Germany and China have rekindled fears of more headwinds in the event that activity restrictions are expanded again.
Like many other markets, the dollar last week saw persistent evidence that the US recovery was slowing and given ongoing daily US infection counts above 200,000, renewed flight to quality buying of the dollar was clearly justified. In fact, the Fed specifically pointed out increased unemployment readings in a number of states and made specific reference to ongoing headwinds from the latest infection surge. Some traders will suggest that the Fed’s comments that they are not even willing to discuss tapering highlights their anxiety over the near-term outlook for the US.
While the euro definitively rejected a spike down new low for the move early this week and the lowest trade since December 2nd, it is very difficult to discount the potential for further downside action this week. Certainly, the hope for US stimulus and less overall rancor in the US could provide some support. However, there continues to be fear that Germany will have to expand restrictions given unrelenting infections with similar problems in China and US infection counts remaining above 200,000 per day and that should leave the edge with the bear camp in the euro.
The equity markets temporarily lost their capacity to “look through” the tail end of the pandemic late last week, and that is likely the result of a growing list of soft US data and fears that the opening-up timing continues to extend into the future. On Friday, the markets did not garner benefit from mostly favorable earnings from banks with bank shares falling after their results were released. Even more discouraging for the bull camp is the lack of a euphoria lift off the American rescue plan and that might be the result of ideas that real work on the package is unlikely in the near term due to the inauguration and the impeachment.
GOLD, SILVER & PLATINUM:
After a significant range down failure on the charts o, the gold market came bounding back with a compacted recovery of $42! With infection problems surging in China and Germany, daily US cases holding above 210,000, a rollover down in the dollar and the prospect of significant political angst in the US transition of power, it would appear as if flight to quality bargain hunting buyers stepped back into gold and silver early this week. In retrospect, gold’s price action reinforces the $1,800 level as critical support, with March silver in a less impressive fashion giving technical credence to the $25.00 level as chart support. While not a recent focal point of the trade, it should be noted that South African gold production for October was revised downward with output in November forecast to be down 7% versus year ago levels.
While we continue to see platinum as a stellar long side market this year, it might require better global data than has been seen recently for the market to continue to stand up to building headwinds from infections in China and The palladium charts are also negative to start with a 5-day low registered early and little in the way of support until a recent double low down at $2344.50. The Commitments of Traders report for the week ending January 12th showed Palladium Managed Money traders net sold 701 contracts and are now net long 3,390 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 897 contracts to a net long 3,416 contracts.
In retrospect, Chinese data released during the Monday US holiday closure was mixed and therefore could be considered somewhat negative for copper. Certainly, year-over-year Chinese GDP growth at 6.5% is supportive of copper (even if that growth remains well below trend) but that news was heavily offset by quarter over quarter GDP growth of only 2.6% and that bad news was amplified by a softer than expected Chinese retail sales reading. Furthermore, Japanese industrial production and capacity utilization for November contracted and infection readings in China reached back up to the highest levels since March and that could be the biggest negative for copper prices this week.
The energy markets look to enter the holiday shortened trading week with a mixed bag of fundamentals. Initial analysis of headlines provides the bull camp with some assistance with reports that global crude oil in floating storage decreased by 17% in the last week reaching the lowest level since last April. Most importantly, the markets were presented with a 7.5% decline in Asian-Pacific floating storage. Furthermore, the bull camp should draft support from predictions from the IEA that OECD crude stocks in November declined by 23.6 million barrels. Unfortunately for the bull camp, crude oil stocks at the OECD have only declined by 48.9 million barrels from the near “tank top” levels seen in 2020 and Chinese production gained 1.6% last year. On the other hand, the mixed bag presented to the market offers fresh threats against the timing of the recovery of energy demand due to the resurgence of Covid-19 cases in China and Germany but also because US infections have consistently held above 200,000 cases per day.
Obviously, the natural gas market severely damaged its charts with a test of 6-day lows early this week. While we suspect that natural gas is undermined by a normal US temperature forecast and to a lesser degree pressured from German and Chinese infection counts, the market should draft support from news that Chinese power consumption increased by 3.1% last year in the face of dramatic drag from the pandemic. Other shorter term bullish issues is record power prices in Japan and reductions in nuclear and Hydro energy production in Europe due to strikes. On the other hand, prices will see some headwinds from an increase in Chinese natural gas production of 9.8% last year from the Chinese national Bureau of statistics.
The soybean market remains in a steep uptrend and continues to show signs of a deeply overbought technical condition. However, expecting a significant technical correction with very little rain in the five day forecast for Argentina appears risky. There is better rain in the northern half of Argentina for the 6-14 day model, but this may not be enough to avoid further stress. The NOPA monthly crush rose to the second highest level on record in December, which left the crush at a record high for all of 2020. December crush came in at 183.159 million bushels, up from 181.0 million bushels in November and 174.8 million a year ago. It was the largest December crush on record and the second largest crush for any month except for October 2020. Traders were expecting crush to be 185.17 million bushels. Soybean oil stocks were pegged at a six month high of 1.699 billion pounds. This was below trade expectations at 1.712 billion.
The corn market remains in a steep uptrend and is technically overbought, but the lack of rain in the five day forecast may be a factor to support more buying. There is more rain in the 6 to 14 day forecast models but there could be more stress on the crop this week. Ukraine grain traders indicated that they saw no grounds to restrict corn exports for the 2021 season. Meat producers and grain feeders want to avoid higher feed prices and have pushed to restrict exports. The Economy ministry will decide on January 25 whether to limit corn exports to 22 million tonnes. China corn imports for the month of December reached 2.25 million tonnes, up 207% from a year ago. This pushed imports for all of 2020 to 11.3 million tonnes, up 135.7% from the previous year. March corn closed lower on the session Friday with an inside trading day. The market managed to gain 35 1/4 cents for the week and posted a contract high on Wednesday.
The wheat market remains in a steep uptrend but close poorly on Friday. Further strong demand from China helped to support. China wheat imports for the month of December reached 880,000 tonnes, up 77.5% from a year ago. This pushed imports for all of 2020 to 8.38 million tonnes, up 140.2% from the previous year. Tightening US and world ending stocks are helping to provide underlined support. The world supply still looks relatively high and it will take a steady flow of positive supply news to expect a further strong advance. Bangladesh is tendering for 50,000 tonnes of milling wheat and Syria is in the market for 200,000 tonnes. Turkey’s state grain board is issued a tender to buy 400,000 tonnes.
February hogs closed sharply higher on the session last Friday as better than expected pork prices plus a cold blast into the Midwest are factors which have helped to support. Talk that the market is a bit oversold after the recent sharp break and ideas that US pork exports could stay strong over the short-term helped to support as well. The USDA pork cutout released after the close Friday came in at $78.78, down 42 cents from $79.20 on Thursday and down from $79.27 the previous week. The CME Lean Hog Index as of January 13 was 65.87, up from 65.48 the previous session and up from 62.96 the previous week. The USDA estimated hog slaughter came in at 386,000 head Friday and 290,000 head for Saturday.
While the short-term supply appears to be adequate, the demand tone remains very strong as traders are a bit nervous that there could be some beef hoarding due to expanding COVID cases. February cattle closed higher but well off of the highs. April cattle also closed higher and the buying Friday pushed the market up to the highest level since January 8. June and August cattle surged higher and have pushed to new contract highs. The jump in beef prices plus significant weather uncertainties for the second half of January are factors which helped to support. The USDA boxed beef cutout was up 25 cents at midsession Friday but closed 45 cents lower at $212.92. This was up from $206.80 the previous week. Very light volume was reported in cash cattle trade on Friday afternoon after a lower-trending week. The 5-day, 5-area weighted average price as of Friday was 109.49, down from 111.35 the previous week.
Cocoa is one among many commodities that have faced demand concerns from the global pandemic as chocolate consumption is tied to economic strength and travel. Developments last week suggest that demand may not be as weak as the market had expected, and that may underpin cocoa prices going forward. March cocoa extended its recovery move and reached a 1-week high before finishing Friday’s trading session with a moderate gain. For the week, March cocoa finished with a gain of 11 points and a positive weekly reversal from Thursday’s 3 1/2 week low.
Coffee had a downbeat finish to last week as it saw pre-holiday profit-taking and long liquidation, but the market has now lifted well clear of its early January lows. With market focus shifting from this season’s “on-year” crop to their upcoming 2021/22 “off-year” crop, coffee prices should remain well supported this week. March coffee built on early strength and reached a new 4-month high, but fell back more than 4.00 cents below that midsession high before finishing Friday’s trading session with a moderate gain. For the week, however, March coffee finished with a gain of 4.45 cents (up 3.6%) and a positive weekly reversal from Monday’s 5-week low. Growing expectations for a large decline in Brazil’s 2021/22 coffee production from this season’s near-record output continue to underpin coffee prices during the early weeks of this year.
The cotton market remains in a steady uptrend but is still under the negative technical influence of the January 13 key reversal. Cotton rallied 1.7% for the week. Outside market forces carry a positive tilt today with strength in the energy markets and gold and weakness in the US dollar. Traders see the improving economy ahead as a supportive demand force and it will be important to see the export market remain very active so the US dollar weakness is a positive force.
While sugar lost upside momentum in front of the holiday weekend, it will start this week in close proximity to last Thursday’s 3 1/2 year high. With key outside markets starting to lose their recent strength, sugar may need to receive fresh bullish supply/demand news in order to hold its ground near its recent highs. March sugar bounced back from initial pressure but fell back on the defensive at midsession before finishing Friday’s inside-day trading session with a moderate loss. For the week, however, March sugar finished with a gain of 85 ticks (up 5.4%) which was a fifth positive weekly result in a row.