The treasury market came under pressure late last week from a slightly better than expected headline payroll result with a gain of 390,000 jobs. However, the unemployment rate was unchanged after expectations calling for a downtick. Therefore, in the end, the fear of additional Fed rate hikes loom and perhaps were intensified last week by a series of federal reserve regional bank president speeches. The treasury charts at the start of this week favored the bear camp as does the fundamental environment with optimism flowing from equities and higher commodity prices. In retrospect, the monthly US jobs figures denoted ongoing recovery in the US economy, with the pace of recovery disappointing to some, while others saw the data as conducive to inflation.
The dollar index fell back from this week’s highs following a conflicted US nonfarm payroll report. As we indicated late last week, the currency markets are suffering from a lack of leadership which in turn is the result of a lack of distinction between the pace of growth in actively traded currency countries. In the end, the US payrolls were judged to be good enough and were considered “Goldilocks” which will hopefully allow for ongoing growth without escalating fears of 3rd straight 50 basis point rate hike by the Fed in September. We see the most likely action in the dollar early this week as sideways chop within a range bound by 102.29 on the upside and 101.30 on the downside.
As in the dollar, we see the euro caught in a sideways chop with the path of least resistance favoring the bull camp. The bias in the Yen remains down despite the severe oversold technical condition of the currency. Unless the UK Prime Minister suffers a no confidence vote late Monday, we expect the Pound to respect consolidation low support.
The stock market did manage positive trade early in last Friday’s session, but that trade was very limited in quickly yielded a partial capitulation and a return to last week’s lows. Obviously, the markets were undermined by notice of job cuts at Tesla, but the markets were also undermined because of warnings from American airlines that fuel costs are likely to overcome upbeat revenue projections. Global equity markets at the start of this week were higher with gains above 1.4% and declines in Russia and Australia, 1.6% and 0.5% respectively. With the North American US scheduled report at the start of this week devoid of data and the monthly jobs report in the rearview mirror, this could allow equity markets to extend their early gains.
The Dow continued to hold the most constructive charts with prices early Monday morning near a 4-day upside breakout. Furthermore, the market was relieved to see the May US jobs report as a “Goldilocks” of sorts. It should also be noted that the Dow Jones was being lifted early Monday by interest in growth stocks
Not surprisingly, the NASDAQ has the least favorable charts but that negative influence is countervailed by very positive big tech action in Apple and Tesla shares at the start of this week.
GOLD, SILVER & PLATINUM:
The Dollar continues to be the primary driving force behind the direction of gold and silver prices. Late last week, the dollar showed signs of extending its downward slide from mid-May which in turn produced the highest gold trade since May 9th. With the gold and silver trade maintaining its focus on the dollar through last week’s US jobs news, the ebb and flow of economic uncertainty remains secondary. However, over the weekend, the Russians resumed their bombing of the capital city in Ukraine with the battle throughout the east intensifying. Therefore, we do not rule out the potential for periodic flight to quality bounces off the war. On the other hand, interpretation of the recent jobs data by the Cleveland Fed President suggested there is compelling evidence that inflation has peaked based on a “range” data.
While it would seem like palladium fundamentals are relatively stable and the recent positioning report in palladium held close to a record spec and fund short ground (record 4,231 net short contracts) the charts suggest the bias is pointing down.
Not surprisingly, the copper market fell back into the close last Friday after forging a low to high rally of $0.30. However, copper prices should see support from news that Chilean copper production in April declined by 8.9%! While the reopening of Shanghai and a slightly positive Chinese scheduled data point last week justified some upside action, we view the rally last week as overdone. In retrospect, a large portion of the buying last week was likely technical short covering given the copper markets significant net spec and fund short!
In retrospect, the crude oil market once again displayed bullish resiliency with a very impressive two low to high recovery of nearly $10.00. Furthermore, the bulls have extended their control early this week with fresh contract highs across-the-board in petroleum markets. Apparently, the markets have discounted news that Saudi Arabia substantially hiked July crude oil prices for Asian buyers to $120 as that could discourage demand for non-Chinese supply. On the other hand, overnight reports indicated Asian buyers were not initially put off by the higher price adjustment. Another fresh positive at the start of this week was an 11% decline in floating crude oil supply over last week. In fact, the Asian-Pacific floating storage declined by 7.1% with North Sea supply down 54%!
While it seems too easy to predict higher gasoline prices due to rising seasonal demand, that issue is in the driver’s seat especially following news that Asian imports of Russian naphtha dropped to a record low last month, which means world supply and not Russian is being consumed! Furthermore, US EIA implied gasoline demand readings have reached 9 million barrels per day but have yet to show further gains at the very beginning of the driving season.
November Soybeans experienced a sweeping key reversal on May 31, which suggests at least a short-term peak may be in place. If the weather in the US is normal, the record planted acreage for this season could spark a global production surplus for the coming year. There is a long growing season ahead and there could be many mishaps ahead, but the short-term weather forecast suggests the crop may get off to a good start. November soybeans closed moderately lower on the session Friday with an inside trading day. The market closed lower on the week after posting a contract high and the weekly key reversal is seen as a negative force. With mostly normal weather in the forecast for the next two weeks, the crop looks to get off to a good start. The weekly export sales report showed that for the week ending May 26, net soybean sales came in at 111,557 tonnes for the current marketing year and 284,000 for the next marketing year for a total of 395,557.
Continued talk of grain shipments moving out of Ukraine soon, plus ideas that the Brazilian second corn crop harvest will be more active over the near term helped to pressure the market last week. However, the news of Russia attacking Ukraine’s capital of Kyiv for the first time in more than a month was seen as a supportive force as this leaves the market with “less” chances of seeing Ukrainian grain moving out of the Black Sea ports. In addition, there was news that Ukrainian troops set fire to tonnes of grain in storage facilities of the Mariupol Seaport. A shift in the 6-10 and 8-14 day forecast models to a potential hot and dry weather trend for the southern Plains may have also helped to support. December corn closed lower on the session Friday and experienced the lowest close since April 1. It was an inside trading day and the market closed 40 cents lower on the week.
Continued talk of grain shipments moving out of Ukraine soon helped to drive the market sharply lower last week. However, the news of Russia attacking Ukraine’s capital of Kyiv for the first time in more than a month was seen as a supportive force as this leaves the market with “less” chances of seeing Ukrainian grain moving out of the Black Sea ports. In addition, there was news that Ukrainian troops set fire to tonnes of grain in storage facilities of the Mariupol Seaport. A shift in the 6-10 and 8-14 day forecast models to a potential hot and dry weather trend for the southern Plains added to the positive tone.
The hog market is probing for a short-term peak with the premium to the cash market and the sluggish action for pork product prices. July hogs closed moderately lower on the session Friday as the early rally failed to attract new buying interest. The market is somewhat overbought after recent solid gains, and a hook reversal Thursday was seen as a negative technical development. Weights remain high but the market remains in a strong seasonal demand period during June. The USDA pork cutout, released after the close Friday, came in at $107.71, down $2.38 from Thursday but up from $106.16 the previous week.
Packer margins are in the black and traders believe the cash market may be close to a short-term low. With packer profit margins already strong, any strength in the beef market could support. August cattle closed lower on the session Friday after a rally to the highest level since May 12th. The USDA estimated cattle slaughter came in at 126,000 head Friday and 96,000 head for Saturday. This brought the total for last week to 603,000 head, down from 644,000 the previous week but up from 544,000 a year ago. The estimated average dressed cattle weight last week was 824 pounds, up from 817 the previous week and 818 a year ago. The 5-year average weight for that week is 805.4 pounds. The jump in weights is a bearish development. Estimated beef production was 529.4 million pounds, up from 514.2 million a year ago. The USDA boxed beef cutout was up 65 cents at mid-session Friday and closed 61 cents higher at $267.26. This was up from $263.97 the previous week. Cash live cattle ended last week lower than the previous week. The 5-day/5-area weighted average prices as of Friday afternoon was 137.53, down from 138.78 the previous week.
The cocoa market has dealt with demand concerns for more than two years, and these concerns became a notable source of pressure the past few months. Even with recent setbacks, the International Cocoa Organization (ICCO) has forecast this season’s global grindings at 5.048 million tonnes, which would be a new record high and the fifth increase in the past six seasons. September cocoa continued to see choppy and volatile trading as it finished Friday’s trading session with a mild loss. For the week, however, September cocoa finished with a gain of 23 points (up 0.9%) which was a second positive weekly result in a row.
Coffee’s 2-day pullback has taken prices well below last Thursday’s 3-month high, but they remain above the 3 major moving averages coming into this week. With the market continuing to receive bullish supply news, coffee should remain well supported on a near-term pullback. September coffee followed through on Thursday’s negative daily reversal as it finished Friday’s trading session with a sizable loss. For the week, however, September coffee finished with a gain of 2.85 cents (up 1.2%) and a fourth positive weekly result in a row.
July and December cotton closed lower last Friday, but they spent the day inside last Thursday’s ranges. The market drew support from the weekly Export Sales report but sold off later in the session. The report showed US cotton exports sales for the week ending May 26 at 354,196 bales for the 2021/22 (current) marketing year and 109,063 for 2022/23 for a total of 463,259. This was up from 132,422 the previous week and the highest since February 17. Cumulative sales for 2021/22 have reached 15.253 million bales, down from 15.727 million a year ago and below the 5-year average of 15.403 million. Sales have reached 110% of the USDA’s forecast for the marketing year versus a 5-year average of 108%. China was the largest buyer this week at 232,925 bales (current and new crop combined), followed by Vietnam at 87,629. China has the most commitments for 2021/22 at 4.868 million, followed by Turkey at 2.084 million and Vietnam at 1.929 million.
Since reaching a 6-week high in mid-May, sugar prices have only had 3 positive daily results over the past 12 sessions. The market continues to hold its ground above the May 16th low, however, and should continue to receive carryover support from key outside markets. October sugar saw few signs of upside momentum as it stayed within a fairly tight trading range as it finished Friday’s session with a mild loss. For the week, October sugar finished with a loss of 28 ticks which was a second negative weekly result in a row.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.