Wkly Futures Market Summary May 8.23


Even though treasury prices are justified in their sharp declines following the much better than expected monthly US jobs report, we caution traders against pressing the short side. In fact, the US bank sector threat has not been extinguished, while treasury prices from the late February low have shown consistent bullish resiliency and other US and international economic data show overall global economic activity is uneven. Uneven to softer data surfaced in significant quantities this week in China and Europe. Treasury prices deserved some selling last Friday following a stronger than expected US monthly jobs report, but once again the market displayed bullish resiliency by limiting the declines with a measure of flight to quality buying off the threat of a debt ceiling crisis. In fact, the US treasury T-bill auction last Thursday saw a brief high of 6% hinting at flight to quality interest in the markets. Last week the markets were presented with an earlier than expected date of June 1st as the date the US will run out of money. While there appears to be some traction in both the House and Senate, the White House continues to indicate they will not negotiate anything but a “clean bill”.


The currency markets last Friday failed to display definitive control by either side of the trade. Perhaps the markets are considering a major focus change toward the dollar following a much stronger than expected US jobs report. In other words, strength in the US economy could be the first sign hopes for a US Federal Reserve rate hike pause are premature and that in turn could improve the status of the dollar. While the dollar has not made a significant move early this week, the bias from the charts is bearish and the failure to sustain gains following a much stronger than expected jobs report highlights fundamental bearishness.


Clearly, the equity markets were cheered by the surprising positive US April jobs report last Friday. While the residual strength in the US job sector will not end the almost daily scares from the US banking sector, investors at least have some reason to hope for better earnings ahead. Unfortunately for the bull camp a surprise loss at Warner Bros. Discovery because of 2022 merger costs undermined a small portion of the positive vibe flowing from Apple earnings. Global equity markets at the start of this week were generally higher except for markets in Japan, Russia, and Germany which traded fractionally lower. Despite a positive global economic/equity market vibe to start this week growing fear over the prospects of a US debt default and the potential for renewed inflation anxiety at midweek, the upside track in equities is likely to be limited and brief.


While the economic report slate is benign at the start of this week, data later on in the week will likely produce significant reactions in gold and silver with China releasing import and export figures and the US releasing key inflation readings. Overnight China apparently raised its gold holdings by 8.09 tonnes last month, resulting in October through April gold reserve additions of 120 tonnes. The overall Chinese gold reserves is pegged at 2,076 tonnes, but we suggest that number is an unsubstantiated figure likely to be strategically understated by the Chinese central bank. Last week, gold ETF holdings increased by 138,847 ounces, but those holdings remain down 0.2% on the year. On the other hand, silver ETFs reduced their holdings by 1.2 million ounces last week with year-to-date gains in silver holdings 0.2%. With the big range down failure at the end of last week, the bias in gold is down and to a lesser degree down in silver.

As in the gold market, the silver market also saw reversal action from last week’s high but the damage on the charts was not as significant as in gold and in retrospect did not appear to damage the charts.

We are surprised with the higher trade in platinum early this week given an initial stronger dollar trade and negative Chinese economic comments from a major industrial equipment manufacturer. However, the trade will be presented with Chinese import and export data (including physical commodities) early Tuesday and those readings will likely set the trend for the week in platinum. While the palladium market generally remains out of favor due to the entrenched expectation that platinum prices are set to narrow their premium verses platinum, the market has seemingly found value at the $1400 level.


Despite disappointing economic views toward the Chinese industrial/construction industry from a major global equipment manufacturer and lingering disappointment from Chinese PMI readings last week, the July copper contract posted a 4-day high at the start of this week and appears capable of retesting $4.00. However, the prospects of a technical low in copper are higher than for a fundamental low in prices following comments from the Komatsu CFO that his company does not see any sign of recovery in China so far this year. The construction and mining machinery company suggested China may have over invested in 2020 resulting in softer demand for equipment in 2021 and 2022. In addition to a triple low around Friday’s low of $3.8250, the copper market holds a net spec and fund short near the highest levels since October and the US nonfarm payroll report last Friday should help to cushion sagging global economic expectations.


Given the aggressive upside extension of last week’s significant recovery, suggestions that technical oversold conditions are fueling the rally are falling by the wayside. Obviously, the much better-than-expected US jobs report scores a major hit against fears of deteriorating energy demand, even though the ultra-strong US jobs data questions the US Fed’s ability to “pause”. Perhaps the trade is emboldened by a 16% decline in crude oil in global floating storage last week and it appears that aggressive selling off the Silicon Valley Bank threat is now resulting in a surprising level of stop loss buying. In retrospect, the July crude oil contract was excessively oversold with a 4-week high to low slide of nearly $20, the RSI falling to 24.4 and the dollar showing more weakness than strength in the wake of a good jobs report. In a minimally supportive overnight development Taiwan reported a 19.1% increase in April crude oil imports which has served to blunt evidence of softer spring demand for fuel. In retrospect, July crude oil prices likely posted a major value zone at the lows last week with the gains on Friday certainly partly the result of the strong US payroll report.

Even though the July natural gas contract rejected the $2.50 level, closed positive last Friday and has extended to the upside early this week, bearish overall fundamentals remain in place. In fact, the prospect of improved US gas demand following the strong US payroll report should be heavily offset by Asian natural gas prices failing at a psychological important $10 level (a 2-year low) and by reports that European buyers are backing away because of more than adequate strategic supply. Furthermore, European buyers now see an opportunity to buy at much lower levels and that could become a self-fulfilling prophecy. Adding to the downward fundamental track are ever-expanding US natural gas export pattern. Last month the US exported a record 8.1 million tonnes of LNG which is a 16% gain from year ago figures. In fact, the US April LNG export was the largest of any nation ever.

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July soybeans closed higher on the session Friday and the arket managed to close 17 1/4 cents higher on the week as well. July meal managed to close slightly higher but still down significantly for the week while July soybean oil closed sharply higher on the session led by a more than 5% gain in palm oil futures Friday. The market is seeing some support from strength in outside markets including a surge up in crude oil, and also finding support from the other grains. The huge discount for Brazilian soybeans to the US has encouraged increased China demand, and has even encouraged US imports of at least four soybean cargos. Brazil may export 12.1 million tonnes of soybeans this month, up 17% from last year. In April, Brazil exported 14.34 million tonnes of soybean, 8.3% more than that shipped in March and 25% above that exported in April of 2022, according to Secex. Between January and April, Brazil exported 33.44 million tonnes of soybeans, a record for the period.


Continued concerns with any type of Ukraine grain deal after the current deal expires this month helped to support. Talk that the market has already priced in a good start to the growing season may have sparked some short covering as well with the market strong. July corn closed moderately higher on the session Friday and the buying pushed the market up to the highest level since April 27. The 5-day forecast models show hefty rain totals for the Dakotas, Nebraska, eastern Kansas, Missouri, parts of Iowa and all the Eastern Corn Belt. This might slow planting progress but is considered a bearish development for the Western Corn Belt drought concerns persist. The 6-10 day forecast models show above normal temperatures and normal precipitation for the entire Corn Belt and this is considered bearish.


The weather forecast looks a bit bearish but the market is extremely oversold and Russia is still not satisfied with how the Russia agricultural exports are represented in the Black Sea grain deal. As of Saturday, Putin had still not responded to the proposals from the United Nations. This may help provide support. Ukraine indicates that Russia has effectively stopped the Black Sea deal. July wheat managed to close 26 1/2 cents higher for the week. Fund traders hold a huge net short position, and added to that short during the past week. This leaves the market with a significant short covering threat. There is decent rain amounts for the Eastern 2/3rds of Kansas and all of Nebraska over the next five days. The extended models are mixed and show periods of above normal temperatures and normal precipitation. July wheat closed sharply higher on the session Friday and up for the third day in a row. The buying pushed the market up to the highest level since April 24.


June hogs closed sharply lower on the session and into new contract lows. The massive premium of June hogs to the cash market is helping to pressure even though the cash market remains in a short-term uptrend. Talk that the extended period of losses for pork producers might be causing some liquidation in the industry helped to pressure. Estimated US pork production last week was 531.2 million pounds, up from 518.2 the previous week and up just 0.95% from a year ago. The USDA pork cutout, released after the close Friday, came in at $79.67, up $1.01 from Thursday but down from $80.13 the previous week. The CME Lean Hog Index as of May 3 was 74.24, up from 73.78 the previous session and 71.29 the previous week.


June cattle closed higher on the session Friday but more than 130 points off of the early highs. While the cash market was lower last week, June cattle remain at a stiff premium to the cash market and this may have helped support the early strong gains. A more positive tilt to outside market forces and ideas that beef production will continue to tighten helped to support. Estimated beef production last week was 508.5 million pounds, down 6.5% from a year ago. Cash live cattle traded in moderate volume on Friday at prices consistent with where they traded earlier in the week. As of Friday afternoon the five-day, five-area weighted average price was 173.91, down from 176.94 the previous week. This leaves June cattle trading at a discount of $12.00 as compared with the 5-year average discount for this time of the year of $9.84.


After a sluggish start to May, cocoa prices have benefited from a positive turnaround in global risk sentiment. If a “risk on” mood can continue early this week, the cocoa market will be in a good position to resume its longer-term uptrend. July cocoa was able to build upon Thursday’s rebound as it maintained upside momentum to finish Friday’s trading session with a sizable gain. For the week, however, July cocoa finished with a loss of 4 points and a second negative weekly result in a row. Global risk appetites continued to strengthen following US jobs data, and that benefitted cocoa prices as that should help to shore up near-term demand expectations.


After several weeks of choppy action, coffee prices were able to regain upside momentum going into the weekend. While an improving demand outlook has provided support, it may be bullish supply developments that can fuel coffee’s recovery move. July coffee continued to build on early strength and reached a 1 1/2 week high before finishing Friday’s trading session with a sizable gain. For the week, July coffee finished with a gain of 2.10 cents (up 1.1%) which broke a 2-week losing streak and was a positive weekly reversal from last Thursday’s 3 1/2 week low.


July cotton gapped higher on Friday and rallied sharply, trading to its highest level since April 19. The market has seen choppy action over the past couple of months, and it is back near the top of the two-month trading range. Crude oil and the stock market were higher, and the dollar was lower; all those moves are supportive to cotton. Some traders viewed the move on Friday as a follow through from Thursday’s limit up move off a strong export sales report and a US Drought Monitor that showed conditions had worsened in west Texas from the previous week.


While it just missed out on a positive weekly reversal, sugar’s turnaround from a 2-week low last Wednesday sets the stage for a new 11-year high early this week. With Brazil’s Center-South cane harvest and crushing underway, sugar price look to be overvauled at current price levels. July sugar continued to see upside follow-through from Wednesday’s reversal as it maintained upside momentum to finish Friday’s trading session with a sizable gain. For the week, July sugar finished with a loss of 3 ticks that broke a 6-week winning streak. Crude oil and RBOB gasoline were able to extend their recovery move from last Thursday’s spike lows, and that provided significant carryover support to the sugar market as it should strengthen ethanol demand in both Brazil and India.

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