Wkly Futures Market Summary Feb 20.24


On the one hand, US treasury prices clearly faltered in the face of two separate inflation reports which definitively pushback timing of a US rate cut. On the other hand, given the upside surprise in last Friday’s US PPI report we would have expected a definitive downside breakout extension in bond prices. Fortunately for the bull camp a 0.8% decline in retail sales provided a bullish fundamental offset to the hot inflation readings. With a chart breakdown at the start of this week resulting in the lowest bond trade since December 4th, it appears the treasury trade is discounting recent evidence of slowing in the US and instead is embracing very minimal inflationary news from last week. On the other hand, given a lack of key scheduled US data, earnings from key bellwether companies like Home Depot and Walmart could have an impact on treasuries.


Apparently, the combination of softening US retail sales and a wave of slightly hotter than expected US wholesale inflation readings has left the dollar in a weakened posture. Fortunately for the bull camp in the dollar, there is very little macroeconomic differential competition and there continues to be a strong probability the US will achieve at least a soft landing. On the other hand. the fundamental disappointment in the bull camp, last week’s developments could temporarily send the dollar down to uptrend channel support. With the dollar falling below the 104.00 level early this week, expectations for a first half rate cut continue to fall and have not provided support for the dollar.

With the euro hooking up on the charts early this week, EU construction output for December improving significantly and the dollar faltering on its charts, the bull camp has the edge. In addition to a faltering US dollar, the pound is drafting support from strength in Barclays shares, and the Pound has seen a general improvement in trade views toward the currency all of which could allow for a test of downtrend channel resistance.


While US equity markets were obviously tripped up by the stronger-than-expected US PPI report last Friday, the markets maintained their bullish resiliency by avoiding the type of significant washout seen last Tuesday following a much smaller upside surprise in CPI. Therefore, the bull camp retains control with market focus likely to begin to shift to upcoming Nvidia earnings which we think will propel prices higher. Global equity markets at the start of this week were mixed with Asian markets showing gains and European markets starting off under pressure. In fact, Chinese equity markets saw a six straight consecutive daily gain off hopes that lower mortgage rates will save the beleaguered Chinese property market.

Fortunately for the bull camp in Dow futures, the charts in the Dow show better structure than in the S&P, but earnings news from Home Depot and Walmart failed to lift prices off their early lows. In the end, the trend is up but we suggest traders trade conservatively.


Fortunately for the bull camp in gold and silver, the dollar has remained near five-day lows as the US economic outlook has deteriorated which has kept some measure of rate cut hopes alive for the first half of 2024. Indirectly the gold market should see minimal support from the very aggressive cut in the Chinese mortgage reference rate overnight as that tamps down fear of a Chinese collapse and global deflation. Unfortunately for the bull camp, gold ETF holdings continue to decline with an outflow last week of 550,951 ounces bringing the year-to-date outflow to 3.1% in less than two months. However, with an empty US scheduled report slate early this week, the trade will likely shift its focus toward Wednesday afternoon’s US Federal Reserve meeting minutes release, but recent dialogue from the Minneapolis Fed suggested significant evidence of softening inflation over months will be needed to cut rates.


In retrospect, the copper market seemed to anticipate the aggressive support from the Chinese central bank for the Chinese property sector as copper prices last week as it posted a low to high rally of $0.15 in the face of disappointing global economic data and periodic adverse outside market influences. However, the move to cut Chinese mortgage rates by the largest amount ever combined with a very consistent and increasingly more important declines in daily LME copper warehouse stocks provides both supply and demand support. It should be noted that PHP will release earnings today (the world’s biggest miner) with the company indicating that China will have to do even more to resurrect their economy.


We suspect several developments have provided crude oil with an early upside breakout to the highest level since January 29th. News that Yemeni rebels have continued to attack ships (indicating one ship might sink), news OPEC+ will extend oil cuts into the second quarter, and the very aggressive Chinese move to support their property sector is emboldening the bull camp. However, extending production cuts might only discourage sellers and might not prompt fresh buying. However, the bull camp should draft support from expanding hedge fund long interest in Brent and from news that this year’s Chinese holiday road traffic was the highest of the pandemic era. The markets are also drafting support from evidence that Chinese vacationers are flocking to areas in Southeast Asia and from very upbeat forecasts for global passenger jet fuel demand this week.

Apparently, the gasoline market is not in favor like the crude oil market, as prices remain near last week’s lows despite an upside breakout in crude oil. Like the gasoline market, the diesel market has failed to join crude oil in an early positive track

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Bearish sentiment may have peaked last week after the Outlook Forum numbers were released, at least for the near term, as money managers are now holding the 5th largest net short in history. Another supportive factor to start the week is the anticipation of new China demand after their Lunar new year holiday. Mato Grosso harvest is moving quickly, now at 65% compared to 58% average and overall soybean harvest in the country is 29.4% complete. Safras estimated 2024 Brazil bean exports at 94 million tonnes, down from 101.86 last season.


A positive start to the week is expected as the Forum numbers are behind us, and the weekend focus was on the funds holding the second-largest net short in history. Mato Grosso planting is moving quickly and now stands at 65.17% done compared to 58.4 average. Safras lowered their Brazil corn production number to 129.2 million tonnes, down from 140.1 million last year and corn planted area is expected to be down 6.2%. The Biden Administration is expected to back a tougher ethanol climate model which would make it harder for corn ethanol to get government subsidies when used for production of sustainable aviation fuel.


Higher Russian wheat crop estimates and a lack of weather threats were serious bearish headwinds this week, but March Chicago has tested the contract low overnight and that may be low enough to finally see a reasonable short covering bounce. Spillover support from corn and beans is also supportive for Wheat to start the week as well as the oversold technical conditions. However, if Black Sea supplies are abundant, US prices will continue to face selling on rallies.


April hogs failed to take out the January 30 high at 85.92 last week, and this may be met with initial disappointment early this week. On Friday, the USDA said the weekly US pork export sales data was incorrect and that they would issue an update this week. Last week’s report showed net sales of 74,569 tonnes for the week ending February 8, up from 71,855 the previous week and the highest since December 2022. Traders may be thinking this number was too good to be true. The CME Lean Hog Index as of February 14 was 75.12, up from 74.60 the previous session and 74.00 the previous week. The USDA estimated hog slaughter came in at 2.559 million head last week, down from 2.622 million the previous week but up from 2.490 million a year ago.


April cattle’s rally on Friday re-established the uptrend off the December low after only a minor correction. The lower trend in cattle slaughter last week could be indicative of the tight supply. The USDA estimated cattle slaughter came in at 608,000 head last week, down from 622,000 the previous week and 625,000 a year ago. The estimated average dressed cattle weight last week was 835 pounds, down from 838 the previous week but up from 825 a year ago. Estimated beef production last week was 506.9 million pounds, down from 514.4 million a year ago. The slaughter came in at 104,000 head yesterday, down from 115,000 last week but up from 102,000 a year ago.


May cocoa rebounded sharply at the start of this week following Friday’s selloff. Some traders viewed the break as merely profit taking ahead of the long weekend, leaving the market ready to resume its uptrend this week. There are increasing concerns that consumer demand will weaken as candy makers raise their prices and/or reduce the size of their chocolate bars in response to the record cocoa prices. Many chocolate manufacturers have chosen to work down a larger portion of their cocoa stocks than normal, and they may have yet to meet the full brunt of the cocoa rally. Ivory Coast port arrivals totaled 36,000 tonnes for the week ending February 18, up from 22,000 for the same week last year. This is the first time that arrivals have been above year-ago levels in some time.


Coffee’s two-day recovery move has lifted the market away from a potential downside breakout and back towards the middle of the late January/February consolidation zone. But with bearish supply developments continuing to weigh on prices, the market needs to see an improving demand outlook to maintain upside momentum. May coffee finished last week with a negative weekly reversal from last Monday’s 7-week high. Brazil’s key growing region of Minas Gerais received 2.25 inches of rain last week, 101% of the historical average. More is expected through Friday, then it is expected to taper off until the following Friday.


May cotton sold off hard at the start of this week following an outside reversal lower last Friday. This followed six consecutive weeks of gains from surprisingly strong export activity. The National Cotton Council’s annual early season plantings intentions survey put 2024 cotton planted area at 9.8 million acres, down 3.7% from 10.23 million in 2023. This contrasts with the 11.0 million acres from the USDA Outlook Forum numbers last week. But the report also called for US ending stock to increase slightly to 2.9 million bales in 2024/25. Last week the US EPA said farmers could use existing supplies of dicamba weedkillers, despite a federal court ban the previous week that halted sprayings.


Sugar’s wide-sweeping price action over the last three sessions did not result in a retest of the 50-day moving average, which is technically supportive, but the market did finish with its first weekly decline in eight weeks. Daily rainfall is expected in Center-South Brazil over the next two weeks, with only one day having a probability below 60%. Late last week, analysts were saying they were concerned that the recent rain had not been enough to replenish moisture, but the forecast seems to offer a better chance for this to happen. The rain is needed, but it will slow down what little remains to be harvested from last season.

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