Wkly Futures Mkt Summary Apr 1.24

BONDS:

The path of least resistance was higher in treasuries late last week as the trade once again managed to shape a neutral inflation reading into a supportive result. In other words, the headline personal consumption expenditure matched expectations and matched the prior month while the core PCE came in at 2% versus 2.1% expectations and 2.1% previously. Apparently, the lower-than-expected initial claims reading was offset by a higher-than-expected ongoing claims reading while the upward revision in US GDP was simply discounted altogether! In retrospect, the treasury trade has settled into a bullish bias with the trade shaping scheduled data to their advantage! Clearly, there were some disappointments in March US inflation related reports, but trade perceptions are fixated on a June cut.

CURRENCIES:

While treasury and equity markets saw last Friday’s US scheduled data as benign, the currency markets saw the data as supportive to the dollar. However, economic competition against the dollar is slim and the trade deep down knows the US Fed will not cut rates until they are very convinced that inflation has been slayed. From a simple macroeconomic differential edge, the US dollar should continue to rise as US GDP was revised upward from 3.2% to 3.4%, while German retail sales collapsed, and UK GDP fell by 0.3%. Apparently, the dollar trade is not buying into the gold market theme of a June US rate cut or embracing the idea that global players are dumping dollars for gold.

The chart action in the euro favors the bear camp with the currency seemingly poised to return to the early February lows. While the US dollar is not showing definitive strength, the pound appears to be out-of-favor and undermined by internal issues. Clearly the Canadian dollar is the most likely to stand up to residual strength in the dollar with solid consolidation low support.  

STOCKS:

The equity markets survived the last of three monthly key US inflation reports without disrupting the bullish environment. In fact, like the treasury markets, the equity markets continue to discount signs of inflation and embrace any sign of slightly softer inflation. Along those lines, the CME Fed Watch tool yesterday afternoon suggested a 55% chance of a June rate cut which improved to 61% after Friday’s scheduled report sweep. In retrospect, the equity markets seem to lose some upside momentum early last week, but the fear of missing out continues to result in higher lows and higher highs. Global equity markets were mostly higher at the start of this week except for the markets in Spain which traded 0.33% lower. Clearly, the bull camp retains control with constant hope of a June rate cut seemingly smoothing over potential threats to equity markets. In addition to favorable Chinese manufacturing data, investors are also hopeful of “Goldilocks” US PMI numbers and hopeful of US jobs data which shows modest growth.

GOLD, SILVER & PLATINUM:

The views that gold prices are being pulled higher by Bitcoin were dealt a blow early this week with gold at times trading nearly $40 an ounce higher and bitcoin at times trading $2,000 lower. Another potential myth regarding the record run in gold is talk that global central bankers are dumping the dollar in favor of long gold positions. While we suspect central bankers have investment plans in motion to buy gold, the dollar has not suffered from a massive rotation. On the other hand, hedge fund managers continue to build up their long positions. In fact, adjusted for the gains since the current COT positioning report was released in June gold has gained more than $80 an ounce thereby likely putting the spec and fund long at the highest level since April of 2022! Not to be left out, silver has also managed a range up extension but remains well below its March highs and adjusted for the gains since the last positioning report was measured silver likely has the largest net spec and fund long since April 2022.

COPPER:

Apparently, the copper trade has been able to discount last Friday’s 1.8% week over week jump in Shanghai copper warehouse stocks, which is surprising considering the rapid “trend” of building stocks at the exchange. However, copper should be cheered by a favorable Chinese Caixin Manufacturing PMI reading for March, but the gains were fractional. Perhaps the trade is cheered by signs of reduced refined copper production plans from several Japanese companies for the first half of 2024.

ENERGY COMPLEX:

With a new high for the move and the highest trade since mid-October the bull camp in crude oil starts the week with the edge. The bull camp is cheered by a favorable Chinese manufacturing PMI reading, a 19% week over week drop in global floating crude supply, and by chatter that Saudi Arabia will raise prices to Asian customers because of solid demand signals! However, Bloomberg has coverage indicating that US suppliers are beginning to gain market share from OPEC plus members which from a longer-term perspective erodes the power of Middle East producers. In a slight WTI positive, India has apparently halted crude purchases from Venezuela because the upcoming expiration of a waiver of US sanctions.

Clearly, the gasoline market is in less favor than crude oil in the early action this week and we suspect that is largely the result of the massive jump in the US refinery operating rate over the past two months, which is likely to result in a near-term buildup in gasoline inventories.  With natural gas managing to consolidate and then bounce from the latest contract low at the end of last week, the short-term oversold condition is partially leveled which could allow for renewed selling and further contract lows this week.