Weekly Futures Market Summary Sep 13th

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BONDS:

In retrospect, we see last week’s high and the previous week’s similar high as a significant resistance if not a top price. While treasury prices fell and yields increased from the PPI release, the reactions were undersized given the historical nature of some of the inflation data. Furthermore, the market did not fall precipitously after Cleveland Fed President Mester indicated she would still “like the central bank to begin tapering this year”. In conclusion, the treasury markets continue to have the ability to discount bearish price developments and embrace bullish price developments.

Another negative facing Treasuries was the potential for a sizable rally in the Dow Jones. On the other hand, another very minor supportive development for treasuries is a strengthening US dollar over the prior 6 trading sessions as attracts capital and hope of currency windfalls from a favorable US interest rate differential. The subject of inflation remains a front burner issue following a long list of global PPI and CPI readings recently as Treasuries will be presented with US CPI on Tuesday. With the latest CDC US infection count 162,279 there has been several infection readings above 160,000, leaving the infection surge as a threat against global macroeconomic sentiment.

CURRENCIES:

The dollar index rallied aggressively last Friday in the wake of a hotter than expected US producer price index reading for August. In fact, several of the components of the PPI report registered historic highs and the pressure on the Fed to begin tapering was notched higher today. However, the dollar was unable to make across-the-board gains against all currencies in a sign that the Dollar’s rally was potentially a temporary knee-jerk reaction. While the next FOMC decision is still over a week away, the dollar appeared to have forged a 1 1/2 week high off residual US tapering expectations.

Not surprisingly, the euro ranged down sharply early this week and temporarily failed at the 1.1800 level in a fashion that projects the currency to extend down in the days ahead. Apparently, the euro was unable to draft support from a very hot German wholesale price index reading. While the net spec and fund long in the euro has likely come down significantly with the post COT report slide of 164 points, the market doesn’t feel sold-out yet. The Commitments of Traders report for the week ending September 7th showed Euro Non-Commercial & Non-Reportable traders were net long 74,780 contracts after increasing their already long position by 21,300 contracts.

STOCKS:

The equity markets waffled around both sides of unchanged late last week after a hotter than expected PPI report fostered some fresh concern over the subject of tapering. However, Apple avoided a major legal problem after a judgment partly exonerated their app payment restrictions. Perhaps more importantly to the tech sector is the judge’s suggestion their job was not to determine if Apple was a monopoly and that being successful is not illegal. Global equity markets at the start of this week were generally positive with the only losers located within China and Hong Kong.

Economic news of importance included a softer than expected month over month Japanese producer price index reading for August, a year-over-year 5.5% jump in Japanese producer prices, and a very significant jump in German wholesale prices on both a month over month and year-over-year basis. Therefore, this news adds minimally to global inflation concerns and notches the prospect of central bank tightening minimally. The latest US infection count was 162,179 cases as of September 10th.

GOLD, SILVER & PLATINUM:

The gold and silver markets started out the new trading week out under pressure, likely the result of a firmer US dollar. In fact, if gold were to close at the opening level that would be a 12-day high close. Surprisingly, last week gold ETF holdings increased by 49,422 ounces which is surprising given the trend of outflows. In retrospect, the gold and silver trade discounted a wave of global inflation news last week in a fashion that suggests the expectation of self-perpetuating inflation is not being embraced yet. Instead, the gold and silver trade focus is usually on a combination of the ebb and flow of physical demand views and the impact from the dollar.

While last week’s massive washout leaves a heavy weight hanging over palladium, the market aggressively rejected a sharp range down move to $2,050 and traded $87 above the early low! Obviously, last week’s debacle-type washout in palladium (a high to low break of more than $300) indicates that a moderate measure of longs have “thrown in the towel”. In fact, in the most recent positioning report the palladium spec and fund long was already net short and with the washout late last week the market is likely approaching a record net spec and fund short (especially if adjusted for the low this morning). Palladium ETF’s last week reduced holdings by 15,297 troy ounces bringing their year-to-date gain down to 6.4%.

While the platinum market avoided tracking down with the palladium market last week, and prices this morning remain near the Friday spike low that suggests the fundamental and technical outlook has shifted decisively negative. However, the market did show respect for recent consolidation lows by rejecting the breakout below $950 and all is not lost for the bull camp yet if the close today is back above $950. On the other hand, the net spec and fund long in platinum remains burdensome despite falling consistently this year.

COPPER:

While the copper market has fell back from a new high for the move early this week, prices have respected the $4.40 level during the early going as if that could be a plateau of support. However, LME copper warehouse stocks are negative to prices with a 6,400-tonne daily increase from Friday. In a sign of broad bullishness toward the entire copper related investment sector, shares of a Chinese based copper company reached 3-month highs following strength in other Western copper related shares last week. A 13-year high in aluminum prices follows a 7% gain in aluminum prices last week and that also favors the bull camp, as the Chinese government might have stoked commodity prices by their interventions.

ENERGY COMPLEX:

With the crude oil contract early this week forging a higher high and reaching the highest price since August 3rd, the lingering US production losses are combining with favorable equity market sentiment to lift prices. Apparently, the bull camp is unfazed by ongoing demand concerns and from news that Asian refineries did not inquire about supply above their contractual levels for October. However, crude oil and floating storage in the past week declined by 8.9% and the markets remain upbeat on the potential for the Chinese to rebuild their reserves despite that fundamental argument being questioned.

On the other side of the world, Shanghai has apparently closed port operations because of a typhoon and that could restrict shipments into southern China. The rally last Friday was mostly the result of a surprisingly slow return of US Gulf of Mexico production, but the markets also saw support from a disruption of loadings in Libya, a downward revision in 2021 US crude output by the EIA and residual support from the extending pattern of weekly declines in EIA crude oil stocks. In a roundabout way, the trade might also be factoring the failure of the Chinese government to dampen crude oil prices designed to help small refiners in China.

While the natural gas market is significantly short-term overbought from more than $1.25 in gains over the past 3 weeks and should be restricted by the bearish larger than expected storage injection last week, the most recent positioning report showed the market maintaining a rather large “net spec and fund short”. Natural Gas positioning in the Commitments of Traders for the week ending September 7th showed Managed Money traders were net long 87,174 contracts after increasing their already long position by 15,206 contracts. Non-Commercial & Non-Reportable traders added 1,044 contracts to their already short position and are now net short 110,236.