Weekly Futures Market Summary May 2.22

BONDS:

We suspect that weakness in treasury bond and note prices late last week in the wake of anxiety from weakness in US equities was the result of a jump in PCE for March and stronger than expected US personal income and spending data. In fact, later in the session, treasuries remained lower despite very disappointing Chicago purchasing managers and Michigan consumer sentiment readings! Even though overall anxiety flowing from US equity market action is initially low early this week, the fear of ongoing sharp losses in equity prices provides cushion for bond and note prices. Obviously, the US Federal Reserve rate decision on Wednesday is hanging over the markets and is likely providing the bear camp in Treasuries with confidence. The bear camp is also likely emboldened by a flurry of headlines touting the largest month over month rise in 10-year yields since 2009 last month.

CURRENCIES:

While the currency markets showed countertrend action at the end of last week, we suspect the dollar will regain its footing and run to new contract highs in the coming sessions. Uncertainty from the stock market from intensifying war efforts, from the hot US inflation data and from the idea the US will go-ahead and hike rates they continue to believe the US economy will stand up better than other competitive economies. With a bounce in the dollar at the start of this week, the bear’s resolve is encountering early adversity.

The Yen sits in the same boat as many non-dollar currencies with economists, investors, and central bankers fearing further Japanese slowing from spillover slowing in China. With the markets discounting the potential for Bank of Japan intervention and the BOJ likely hand cuffed from raising rates, the bear camp has a free hand to push the Yen to fresh contract lows.

STOCKS:

Not surprisingly, the US equity market continued to suffer selling from the disappointment flowing from the big tech sector. Obviously, investors are also unnerved by the looming US interest rate hike which many investors fear will be interest of the current economy. In fact, current buzz has the US consumer sector softening considerably and continue to embrace that view despite much stronger than expected personal income and personal spending results for March. Global equity markets at the start of this week were lower with the exceptions the markets in Shanghai and Hong Kong. While US markets showed modest positive action early this week, the overall environment leaves the preponderance of forces in the bear’s camp. In addition to rising US and Chinese infection numbers, Boeing lost orders to Airbus, evidence of ongoing weak Chinese data continues to flow, headwinds are expected to continue from sharp declines in global consumer spendable income (due to inflation) and the lack of positive takeaway from earnings leaves the bear camp very confident.

While the Dow futures did not fall below the Friday spike low, prices are butting up against a measure of overhead consolidation resistance, fear of rising rates is likely to dominate market sentiment over the coming 3 days, and favorable earnings are having little impact on the markets

GOLD, SILVER & PLATINUM:

Apparently, the significant setback in the dollar at the end of last week, combined with the full take-away of the World Gold Council first quarter outlook, spurred the significant recovery rally off last Thursday’s low on Friday. However, June gold surrendered $25 from the Friday high and has been pummeled early this week which has produced clearly negative charts. The gold and silver trade is also undermined because of expanding economic concerns toward China, as lockdowns in China and “other cities” and are hammering economic activity.

In a very surprising development, the platinum market came alive last Friday and seemingly tracked with palladium. Fortunately for the bull camp, the latest positioning report in platinum remains minimally net long after a significant liquidation of the long last week after the report. The Commitments of Traders report for the week ending April 26th showed Platinum Managed Money traders net sold 13,322 contracts which moved them from a net long to a net short position of 12,638 contracts. Non-Commercial & Non-Reportable traders are net long 3,883 contracts after net selling 10,508 contracts.

COPPER:

Clearly, the copper market has come unhinged because of the expansion (not contraction) in Chinese lockdown conditions. In fact, several analysts predict both copper and iron ore prices have further downside to factor in increased and ongoing Chinese economic headwinds. Apparently, the Chinese economy was already slowing from initial lockdown efforts with PMI readings dropping from 48.4 in March to 41.9 in April. Even smaller manufacturing companies were hit with the Caixin manufacturing PMI reading falling much more than expected.

ENERGY COMPLEX:

With a significant downside extension early this week in crude oil taking place in the face of fresh chatter of the potential for an EU ban of Russian oil, the bear camp has clearly gained the upper hand. Unfortunately for the bull camp, current expectations have an EU ban “by the end of the year” and that timing is disappointing to the bull camp. Not surprisingly, a major argument for the bear camp is the prospect of further Chinese lockdowns as China continues to manage its Covid flare very aggressively. However, it should be noted that press reports suggest the number of daily infections measured in key cities only number in the low hundreds and not in thousands.

While the gasoline market fell back from its highs on Friday like crude oil, the reversal was less severe than in crude oil. However, the action from last Friday is resulting in catch up selling early this week. In our opinion, the fundamentals in gasoline are stronger than crude oil with the US refinery operating rate relatively low for a tight supply environment. However, northern hemisphere seasonal demand should post only incremental gains over the next two weeks. In a negative demand development, the allowance of high ethanol content use gasoline mixes has been officially sanctioned for the US this summer and that could temper tightness in gasoline stocks.

While the natural gas contract extended the downside trend last Friday, prices recovered/rejected that washout possibly in a short covering pre-weekend trade. Furthermore, tight inventory fears have surfaced again early this week, colder than usual weather for the US Northwest and Northeast next week has been noted and with the latest positioning report still showing a net spec and fund short, the bounce is justified by several factors. Unfortunately for the bull camp, supportive US weather is countervailed by mild and therefore negative European temperatures. As of the most recent and suspect reports, Russian gas continued to flow westward but has not been consistent for the last three weeks. With the total Baker Hughes weekly rig operating count (oil and gas) increasing by 3 rigs to 698 the rig count is the highest since March 2020.