Wkly Futures Market Summary June 20.23

June 20, 2023
ADMIS Research Team
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BONDS:

With another range trade in treasuries resulting in a full week of sideways consolidation last week, the trade is looking for its next focal point. In retrospect, with the inability of Treasuries to recover sharply after evidence of declining inflation from multiple US scheduled reports, we think the bull camp has lost resiliency. However, overall market conditions (especially given the gains in equities) seem to be suggesting that global economic uncertainty is on the decline and that is probably prompting flight to quality long liquidation in treasuries. Treasury prices tilt in favor of the bear camp to start the holiday shortened week, with 5 of the last 6 trading sessions showing downside probes toward initial consolidation support.

CURRENCIES:

The very significant downside extension of the early June washout in the dollar has been given credence by the divergent action between foreign central bank rate hikes and the US “pause”. The Dollar bears are also growing confident in their positions because clear evidence US inflation is falling as that in turn could reduce the amount and duration of remaining US rate hikes. Therefore, we expect the Pound, Canadian, Euro and Swiss to continue to “win by default” from dollar declines.

STOCKS:

With another new high for the move and most of last Friday’s trading session seeing action in positive territory, equity investors continue to be confident in more gains. As indicated in treasury market coverage, economic uncertainty and economic anxiety appears to be deflating and that in turn should lower fear among investors which has probably increased the interest in buying from “the fear of missing out”. In retrospect, corporate news flow this week has favored the bull camp with an explosion in large cap evaluations attracting significant headline coverage which in turn boosts confidence among investors. Global equity markets early this week were higher except for the Australian, British, and Spanish markets. With global equity markets unfazed by recent Chinese stimulus/support for their economy and global stocks tracking lower early this week, it is possible that the US stock index futures will correct a portion of last week’s aggressive gains.

GOLD, SILVER & PLATINUM:

From a technical perspective, we give the edge to the bear camp with August gold near the middle of the last month’s consolidation zone and probing lower in a fashion that could target $1950. From a fundamental perspective, the bear camp also has an edge with the dollar initially making a 3-day high and extending the recovery off last week’s spike down move. Even investors have turned cool toward gold with last Friday presenting a 15th straight day of outflows from gold ETF holdings. Last week, gold ETF holdings posted a decline of 241,857 ounces. On the other hand, silver ETF holdings increased slightly on Friday but saw a net outflow last week of 3.1 million ounces.

COPPER:

With copper early this week at times trading $0.05 below the high last Friday in the face of another Chinese interest rate cut, the trade shows entrenched fear of reduced Chinese copper demand from a sluggish economy. On the other hand, in a potential contrary signal, hedge fund managers shifted from a net short to a net long reading in last week’s positioning report, potentially signaling the late May and early June rally might become “bought out” with further gains. However, daily LME copper warehouse stocks posted a 2nd straight day of declines while there was a sizable weekly decline last week in Shanghai exchange copper stocks of 20.1%. On the other hand, at the end of last week daily LME copper warehouse stocks saw a massive single day inflow of 11,100 tonnes.

ENERGY COMPLEX:

With a 7 day high in August crude to start this week forged in the face of soft global equity market action, the focus of the crude oil trade remains on anything related to Chinese energy demand. Clearly, the trade has discounted statements from the Chinese National Petroleum Corporation pegging their oil demand this year to see slower “growth” than last year with a year-over-year gain of only 3.5%. However, evidence of strong Chinese imports of crude oil have been seen from Russia, Kuwait, and other Middle East exporters. In fact, Chinese crude oil imports from Russia posted a record at 2.29 million barrels per day last month! Furthermore, the markets see solid evidence of a surge in Chinese imports with the number of supertankers destined for China reaching the highest level in 12 months. While some traders have discounted the increase in Chinese crude oil imports to typical improving seasonal and summer demand patterns the reality is more oil is disappearing from the world market. Positive Chinese energy demand expectations have been further bolstered by strong Chinese traffic level measurements from Bloomberg news.

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BEANS:

With a significant bulge in early trading volume this week feeding a higher high thrust, and then seeing a high to low setback of $0.36 that could indicate a temporary blowoff top, we suspect recent extremely active and widespread weather events and similar activity projected ahead has led to a shift towards a negative bias in soybeans. Granted, aggregate precipitation amounts do not appear to be “drought busting” and in most cases rainfall was spotty. Therefore, the idea of falling US production remains just under the surface. In fact, recapping precipitation in key US soybean growing areas has been extremely difficult with each general growing area receiving recent showers.

CORN:

As in the soybean market, the corn market overnight sharply extended last week’s strong rally but has recoiled aggressively from that high. In fact, December corn as of this writing is trading $0.12 below the overnight high on reports of very active trading volume. Unfortunately for the bull camp, China posted a 10.6% year-over-year decline in May corn imports and a yield forecast for European corn showed only a very minimal decline from 7.64 to 7.61 tonnes per hectare. China is thought to be using more wheat than corn in feed rations.

WHEAT:

Wheat rode the coattails of corn and beans last week and as those markets pull back on rain chances, wheat could weaken into support. More soil moisture boosting rains hit the southern HRW belt over the weekend. EU Crop Monitor lowered SRW yields to 5.92 tonnes/hectare from 6.01 tonnes/hectare last month, but still ahead of the 5.81 tonnes/hectare 5-year average and rain relief slated for N Europe this week is expected to end the crop conditions slide for at least the short term. The grain corridor looks all but dead as it seems Russia says nearly every day it’s not working or impossible to extend. Grain moving through the corridor fell 33% last week from the prior week, however, US wheat markets have grown tired of reacting to Black Sea news.

HOGS:

Open interest in lean hogs has fallen sharply as the market has posted a steep and quick recovery off its contract lows from May 26, and this does not bode well for continuation. The hog market has drawn support from stronger pork prices, which have reached their highest levels in almost six months. The USDA pork cutout, released after the close Friday, came in at $89.60, up 27 cents from Thursday and up from $86.20 the previous week. This was the highest the cutout had been since December 23. The weekly average Iowa-Minnesota hog weight fell sharply last week, which also lent support. Weights do tend to decline this time of year, but the current weight is 7.4 pounds below a year ago and 4.8 pounds below the five-year average.

CATTLE:

Cash cattle prices ended lower last week, but the beef market remained strong, and this could support the cattle futures this week. August live cattle closed higher on Friday after trading back above the 170.95 level, which appears to have been a bull/bear line the past couple of sessions. That level represents the first retracement of the May-June rally to contract (and all time) highs, and the move back above there on Friday could be viewed as technically bullish. The market is still respecting the key reversal top in the October futures on June 7.

COCOA:

Cocoa prices will start this holiday-shortened week 217 points above their May month-end close (up 7.2%) which would the largest monthly gain during its 9-month winning streak. With a negative shift in global risk sentiment following Friday’s close, cocoa is vulnerable to a wave of profit-taking and additional long liquidation early this week. September cocoa started out in a tight early trading range before finding midsession pressure as it went on to post a moderate loss for Friday’s trading session. For the week, however, September cocoa finished with a gain of 61 points (up 1.9%) which was a seventh positive weekly result over the past 8 weeks. The prospect of higher Euro zone interest rates by the end of this year may dampen European chocolate demand, and that became a source of pressure on cocoa prices going into the weekend.

COFFEE:

Coffee prices saw choppy action last week as very tight supply in Vietnam and Indonesia was balanced against increasing Brazilian Arabica production. With signs of improving global demand, coffee may be able to regain and sustain upside momentum early this week. September coffee was unable to hold onto early strength as it finished Friday’s trading session with a sizable loss. For the week, September coffee finished with a loss of 5.90 cents (down 3.2%) which was a third negative weekly result over the past 4 weeks.

COTTON:

The 1-5 day forecast now has up to 2 inches of rain for parts of West Texas and the Panhandle, which is a significant increase from late last week. The forecast for the next seven days calls for above normal temperatures and close to normal rainfall and a slight to moderate loss of soil moisture. The 6-10 and 8-14-day forecasts call for above normal temperatures and below normal rainfall. However, the 30-day forecast has above normal temperature and normal precipitation, which does not appear to be a big threat. As of June 13, 18% of the US cotton growing area was under drought, down from 28% two weeks prior and 52% a year ago. Traders may also be counting on an increase in moisture this summer from El Nino, but NOAA cautions that the correlation between El Nino and rain in the southern US is not very strong during the summer.

SUGAR:

Sugar’s 3-day rally going into the holiday weekend has lifted the market back to within striking distance of its late May and early June highs. While El Nino is expected to cause production issues for several major cane-growing nations, a bearish Brazilian supply outlook leaves sugar overvalued at current price levels. October sugar continued to build on early strength as it reached a 4 1/2 week high before finishing Friday’s trading session with a sizable gain. For the week, October sugar finished with a gain of 107 ticks (up 4.3%) which was a second positive weekly result in a row.

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