While June bonds tested 3-week highs in the face of an active US scheduled report slate last last week, there did not appear to be a definitive fundamental track. However, from the post PCE report price action, the trade interpreted the important inflation reading to show softening even though the overall level of the indexed remained at historically high levels. While Bank of America predicted the US Fed may “pause” in September, that supportive news was offset by a stronger-than-expected US personal spending result.
Despite concerns of recession and weaker equities, treasury prices are under noted pressure to start the holiday shortened week.
Even though the dollar aggressively rejected the spike down move late last week, the trend looks to remain down. In addition to some views that last Friday’s US PCE reading was less inflationary, the trade also saw positive non-US data in the form of strong Spanish retail sales and an increase in EU private loans. The recovery in the dollar might have been partially the result of another strong risk on rally in US equities.
The euro is well back from its initial highs and is undermined because of strength in the dollar and disappointing euro zone price index readings over the past 36 hours. Apparently the uniform uptrend in the Yen has been reversed with a large range down move in the currency early this week. While the Pound is exhibiting reversal action as other nondollar currencies early this week, the market could find credible support.
All things considered, last week’s action in equity markets served to temper investor and economic anxiety from the sharp spike down move last week. The bull camp was assisted by lower treasury yields, chatter that the PCE showed some moderation of inflation and positive earnings results from Dell. In another positive, the VIX index showed its 3rd straight day of declines.
Like the S&P, Dow futures also spiked higher and reversed aggressively from that high. As in the S&P, we see the Dow vulnerable to significant corrective action this week with initial targeting seen down at 32,500.Reports of rising US retail inventories, residual fear toward FANG stocks and crude oil at times overnight up more than $4 per barrel, we see the NASDAQ setting back to support.
GOLD, SILVER & PLATINUM:
With US recession fears flaring, the opening of Shanghai has been lost in the precious metal shuffle. However, with the dollar index regaining its footing after an extremely poor close last week, gold and silver do not have fresh bullish fundamental support to start the holiday shortened week. While it is unclear if the Biden/Powell meeting today will yield any fresh news, dialogue from that meeting the outcome is more likely to be bearish toward gold and silver than supportive. In an indirect impact, Chinese factory activity contracted less than expected but that news was probably baked into the cake already. In looking ahead to US scheduled data, two separate US house price measures will be seen with both expected to contract.
Silver has also pivoted downward from last week’s strong finish and adjusted for the declines since the last positioning report, silver is likely near the lowest levels since June 2019!
With a 3rd straight higher high and the highest price since May 18th, the palladium market started the holiday shortened week on a positive footing.
While July copper failed to hold an upside breakout at the start of this week, prices are at the highest level since May 5th and that is likely the result of the reopening of Shanghai. Obviously, reopening of Shanghai and reports of low infection counts from Beijing improve the copper demand outlook to start the new week. In fact, Chinese import copper premiums increased while Chinese refined copper exports reached the highest level since April 2017.
While the EU embargo against Russian oil has been widely anticipated since the initial days of the invasion, a formal agreement has ignited prices to fresh contract highs early this week. Crude future spreads have also turned bullish, the trade is anticipating a record summer driving season and suggestions from the head of the IEA to German officials that the current energy crisis is “much bigger” than the oil shortage of the 1970s certainly provides a combination of fresh speculative buying and longer-term hedge buying.
The scary thing for global fuel users is the fact that the net spec and fund long in gasoline is near the lowest levels since September 2021, as that suggests buying fuel remains substantial.
After seriously lagging the entire energy complex in the first 19 days of May, the diesel market has caught on fire at the start of this week with a low to high upside extension of $0.23!
The natural gas market is not participating in the sharp upside extension in the petroleum complex and that is likely the result of a lack of EU restrictions on natural gas and pipelines from Russia. Apparently, Russia has begun to halt gas supply flow to unfriendly countries like the Netherlands. However, the EU has specifically indicated it will not ban Russian gas and that is probably undermining prices early this week! Nonetheless, traders expect ongoing strategic reserve building by sovereign entities, as the upswing in the northern hemisphere cooling season gets underway.
With wheat and corn markets growing more concerned of increasing shipments out of Ukraine, and with Malaysia palm down 1.8% on Monday as Indonesia has received its first request for palm oil export permits following the lifting of a ban a week ago, the market is started off this week on a negative tilt. The Brazil harvest is mostly complete and absorbing the big supply may be seen as a negative factor. For the US April soybean crush, traders are looking for crush near 180.5 million bushels for the month which would be down from 192.9 million bushels in March but up from 169.8 million bushels last year. Estimates range from 178.5 million to 182 million bushels. Soybean oil stocks are expected to decline to 2.316 billion pounds compared with 2.434 billion at the end of March and 2.178 billion last year. Estimates range from 2.280 billion to 2.360 billion pounds.
There are still some concerns with too much rain in Minnesota and North Dakota and traders will continue to monitor the situation.
Once again, there is hope that shipments of Ukrainian grain and fertilizer could begin moving soon with negotiations with Russia, the United Nations and with Turkey. Putin is also indicating that if sanctions were lifted, they could increase the amount of grain exported significantly. December corn closed sharply higher on the session Friday as traders see continued planting issues for North Dakota and Minnesota, and traders are also very skeptical over the idea that there will be much grain flowing from Ukraine imports anytime soon.
The corn market managed to hold shallow support last week and even held above the May 9 lows, which is a positive technical development.
Once again, significant uncertainty in the politics of the Ukrainian war could keep trade volatile. On Monday, Putin indicated that Russia was ready to facilitate the unhindered export of grain from Ukrainian ports in coordination with Turkey. The United Nations is trying to broker a deal to unlock Ukraine’s grain exports and Putin also indicated a readiness of the Russian side to facilitate shipments in coordination with Turkish partners, but also added that if sanctions were lifted, then Russia could export significant volumes of fertilizer and agricultural products.
On top of the Russian news, better weather for France helped to drive European milling wheat futures down 2% on Monday.
June hogs tested last Thursday’s high early in last Friday’s session but failed to take it out, and the market closed moderately lower on the session. The market has moved nearly half way back of the March 31 to May 12 break, and there is talk of a short-term overbought condition. In addition, June hogs are trading at a higher than normal premium to the cash market which may limit the short term buying activity. It will take further strong gains in pork cutout values in order to expect the cash market to remain in a short-term uptrend. The CME Lean Hog Index as of May 25 was 104.40, up from 103.87 the previous session and up from 100.37 the previous week. The USDA pork cutout, released after the close Friday, came in at $104.69, down $1.47 from Thursday and down from $105.16 the previous week.
With the large discount and a three day weekend, traders seemed reluctant to sell the market and technically, the market is in an oversold condition. Futures remain discount to the cash market, but the cash market has drifted lower in recent weeks. Cash live cattle were $1-2 lower last week with the 5-day, 5-area weighted average price as of Thursday afternoon was $138.48, down from $140.45 a week ago. The USDA boxed beef cutout was up 96 cents at mid-session Friday and closed $1.45 higher at $265.42. This was up from $262.17 the previous week and was the highest the cutout had been since April 25.
While cocoa prices remain on-track for their third monthly decline over the past 4 months, they have lifted clear of last Wednesday’s 5 1/2 month low. Near-term demand prospects may remain a concern for the market, but cocoa is showing early signs that a longer-term low may be in. September cocoa off early pressure and rallied to a 1-week high, but lost strength late in the day as it finished Friday’s trading session at unchanged levels. For the week, however, September cocoa finished with a gain of 39 points (up 1.6%) which was the first positive weekly result since early April as well as a positive weekly reversal.
Stronger European and US equity markets provided cocoa with carryover support going into the holiday weekend.
Reports that Nigeria’s April cocoa exports were more than 60% below last year’s total provided more evidence of lower West African production this season, with Ghana likely to have their full season production total come in more than 200,000 tonnes below last season’s total.
Coffee prices are finishing a month of choppy action by reaching their highest prices levels in May last Friday, which was also their first close above all 3 major moving averages since early April. If global risk sentiment continues to mend, coffee should finish the month on an upbeat note. September coffee extended its recovery move to a new 6-week high before finishing Friday’s trading session with a sizable gain and a third positive daily result in a row. For the week, September coffee finished with a gain of 13.70 cents (up 6.3%) which was a third positive weekly result in a row as well as an outside-week higher close.
Production issues in Brazil and Colombia continue to provide underlying support to the coffee market, as those 2 nations combined account for more than half of global Arabica production.
July cotton closed lower last Friday after trading to its lowest level since April 27. The market closed 119 points lower on the week. December cotton also closed lower. The dollar closed weaker and the stock market and crude oil higher. This should have been supportive to cotton, but the moves were apparently not dramatic enough to spark much reaction.
The 1-5-day forecast calls for heavy rainfall across Oklahoma and in the Texas Panhandle with lighter amounts in west Texas. This is not enough to relieve drought, but there seems to be a pattern of increased rainfall relative to earlier in the season.
Sugar prices have been unable to extend their mid-May rally for several weeks, but they remain above their 3 major moving averages and on-track for a sizable monthly gain. With positive global risk sentiment and stronger key outside markets providing support, sugar can extend its recovery move early this week. October sugar was able to bounce back from early pressure to finish Friday’s trading session with a mild gain. For the week, however, October sugar finished with a loss of 32 ticks (up 1.6%) which was a first negative weekly result over the past 4 weeks.
The prospect of record high production and exports in India this season weighed on the sugar market this week. India’s government set a limit of 10 million tonnes for their nation’s sugar exports this season, but that would be far above last season’s record high total of 7.2 million tonnes.
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