Wkly Futures Market Summary Oct 9.23

BONDS:

On the one hand, the sharp slide in treasury prices following US jobs data last Friday, was justified but a low to high recovery of nearly 2 points from the post job’s report slide low might have been overdone. In fact, given the nonfarm payroll gain was double expectations and prior month payrolls were revised higher, the bear camp leaves the trading week with clear fundamental control. Typically, a very surprising monthly nonfarm payroll report result takes more than one trading session to fully settle into prices. However, the treasury markets were aggressively oversold from last Friday’s spike down move and spec positioning has certainly become excessively short.

While treasuries were showing strength at the start of this week from the attacks over the weekend, the US cash treasury markets were closed for the Columbus Day holiday and ranges were narrower than normal.

CURRENCIES:

The action in the dollar last Friday should be quite unnerving for the bull camp, as very strong September US payroll readings should have pulled a wave of buying to the dollar. Furthermore, the dollar failed to benefit from upward revisions from prior monthly payroll readings, perhaps because of a slight softening of US wages which can be a sign of moderating inflation. Therefore, the dollar might be signaling an intermediate top, especially if ultra strong jobs data does not result in some hawkish commentary from the Fed.

In retrospect, the euro was lucky to have managed a bounce at the end of last week as classic fundamental news from both sides Atlantic was bearish for the euro. . In retrospect, the Canadian dollar was excessively oversold from a technical perspective into last week’s low.

STOCK INDEXES:

The strength in equity prices last Friday was surprising as the markets displayed the capacity to discount “good economic data is bad for equity prices”, perhaps because wage data showed a softening of inflation thereby comforting the Federal Reserve. The markets likely drafted support from merger talks between Pioneer Natural Resources and Exxon Mobil. However, the UAW strike continues but there that “bargaining activity has picked up”. Surprisingly there were markets posting gains at the start of this week, despite what appears to be much more than simple military exchanges between Israel and Hamas.

All things considered, seeing the S&P shut off the aggressive August through early October selloff last week in the face of several bearish entrenched fundamental issues (rising rates, political battles, debt ceiling issues, etc.) might indicate value has been found above 4,235.

Like the S&P, the Dow futures have apparently found value above last week’s spike lows and the trade/investors have been comforted by the much better than expected jobs report. As indicated several times last week, the NASDAQ continues to show the strongest signs of life with the market building consolidation low support over the past three weeks and potentially poised to breakout up to the highest level since September 20th early this week.

GOLD, SILVER & PLATINUM:

Not surprisingly, gold and silver are benefiting from the uncertainty created by the attack of Israel by Hamas. Fear of hostilities throughout the Middle East usually results in a knee-jerk reaction rally in gold, especially with respect to events involving Iran. However, many gold traders are rightly suspicious of the rally, and are likely to step into fresh short positions once it becomes clear other countries/parties are not entering the conflict. According to Bloomberg, gold rallied and failed in January 2020 when Iran launched retaliatory missile strikes on US bases in Iraq and a rally also failed in 2019 when oil flow through the Straits of Hormuz was threatened by.

With the Chinese back from an extended holiday and their economy likely boosted by the holiday travel surge, traders should be monitoring all news from the Chinese property sector, action in the yuan and Chinese domestic gold prices as their does appear to be flight to quality buying of gold going on inside China.

However, the PGM markets do not show consistent sensitivity to outside market signals and are likely to continue to erode. On the other hand, the palladium market with the declines at the end of last week likely has a record net spec and fund short while the platinum with the declines late last week might only be approaching neutral positioning.

COPPER:

Apparently there were reports of strong Chinese demand early this week as Chinese entities returned from holiday and possibly caught up on operations. However, prices should be limited following news that copper inventories in key Chinese facilities increased by 20,500 metric tonnes from September 28th to October 7th, with the latest reading 10,900 metric tonnes above year ago levels. The most positive development for the copper market is last week’s triple low formation which provides a thin layer of support early this week. While the end of the extended Chinese holiday might result in a smattering of upbeat economic Chinese press reports, the woes of the property sector remain and would be buyers are unlikely to step in in force without another stimulus package.

ENERGY COMPLEX:

So far, the battle between Israel and Hamas has resulted in an anticipatory supply threat, but a real supply threat could surface if Iran begins to play a prominent role in the conflict. However, a portion of the large bounce is justified given the sheer magnitude of the attacks which distinguish the current situation from periodic skirmishes. According to some estimates, 1,200 people have been killed and with the US moving ships into the region that could spark a negative reaction from the Arab world. Certainly, the outbreak of hostilities in the Middle East tempers global economic sentiment and in turn questions global energy demand. However, the ultra-strong US jobs report last Friday and the return of China from holiday should help cushion prices against demand fears.

In retrospect, last week’s EIA report was patently bearish for gasoline with a very large 6.4-million-barrel inflow, the annual year over year surplus more than doubling in one week and EIA weekly implied gasoline demand falling by 600,000 barrels per day. On the other hand, seeing Russia extend its gasoline export ban and given very strong US jobs data escalating demand fears from the past three weeks should be heavily discounted.

The diesel market appears to have found some value at the $2.80 level and has ongoing global attention from “tightness of the global diesel market”.

Even though the global natural gas trade has indicated the Middle East conflict will not impact global natural gas supply flow, prices have extended on the upside as if other factors are present.