Weekly Futures Market Recap Sep 26.22

BONDS:

The latest UK consumer confidence reading reached a record low while a set of European “flash” manufacturing PMI’s all saw sizable declines from their previous results. While there was no major US data to digest last Friday, Canadian retail sales came in well below trade forecasts. Treasuries received significant flight-to-quality inflows as Bonds rallied from 11-year low to post a sizable gain during Friday’s trading session. While the treasury bond market has forged an inside trading range in the early going this week, the two large range down probes at the end of last week following the very hawkish promises of the US Federal Reserve last week leaves fundamental and technical trends pointing down. However, global economic news at the start of this week showed further slowing evidence from Europe, global equity markets remain under noted pressure and the dollar remains in vogue and that should eventually provide cushion for bond and note prices.

CURRENCIES:

The Dollar rallied up to a new 20-year as it finished Friday’s trading session with a sizable gain. The prospect of upcoming Fed rate hikes through the first quarter of 2023 helped to funnel safe-haven inflows that has supported the Dollar late this week. In sharp contrast, the British Pound sustained heavy losses in the wake of a badly-received UK “mini” budget and reached a new 37 1/2 year low before closing the day and week with a severe loss. With another big range up contract high in the dollar at the start of this week, the greenback continues to benefit from expectations of attractive US treasury yields.

While big picture macroeconomic selling continues to dominate the euro, soft German Ifo readings for September add to the bearish track early this week. News that McDonald’s in Japan will raise prices on 60% of it is menu, mixed Japanese bank manufacturing/services PMI readings for September and fresh/significant chart damage, the near-term target in the Yen is the lows from 1998 below 70.00.

While the Pound aggressively rejected a major range down extension at the start of this week and that in turn provides some deterrent to fresh selling interest, the fundamental backdrop hardly justifies a sudden reversal or a sustainable bottom. The early September bounce in the Canadian dollar clearly corrected the oversold technical condition and set the groundwork for the 2nd half of September washout.

STOCKS:

Global markets put together a modest recovery at midsession, but still finished last week with a severely negative risk tone. Following rate hikes by the Fed and other major central banks, an announcement of a UK “mini” budget was not well received and triggered a “risk off” mood in many market sectors. US equity markets rebounded from midsession lows but still finished Friday’s trading session with heavy losses. Global equity markets at the start of this week were generally lower with some declines over 2.5%.

Obviously, the S&P remains entrenched in a bearish liquidation pattern with last week’s major range down failure unable to signal an exhaustion bottom with a close back above the midpoint of the Friday range. While the December Dow has held above the contract low from Friday at 29,315 early this week, we expect fresh lower lows for 2022 in this week’s action.

GOLD, SILVER & PLATINUM:

On the one hand, the gold market at the end of last week saw a key chart support failure and downside extension from stop loss selling, and that should leave the bear camp in control to start the new trading week. On the other hand, the gold market last week initially held up impressively in the face of an aggressive US interest rate hike and a significant upside surge in the US dollar before succumbing to the big picture broad-based commodity market meltdown. However, with foreign central banks promising to raise rates in sync with the US, the dollar expected to aggressively extend its upside breakout and reports earlier last week of slower gold shipments into China, the gold market looks to be under ongoing pressure from inside and outside market forces.

While the December silver contract showed some respect for key support, silver remains extremely vulnerable to negative overall commodity price action.

Like other precious metal markets and many physical commodities markets, the December palladium contract posted a very damaging downside failure at the end of last week and could be poised for a quick slide down to even numbers at $2,000. Unfortunately for the bull camp, platinum ETF holdings continued to decline precipitously with the most recent outflow pegged at 5,060 ounces and year-to-date holdings down by 13%.

COPPER:

In addition to copper entering last week’s action short-term overbought from both fundamental and technical perspectives, the extremely bearish shift in macroeconomics leaves December copper vulnerable to a failure at $3.25 early this week. Fortunately for the bull camp, the copper market in the most recent positioning report was net spec and fund short before the market declined $0.18! The Commitments of Traders report for the week ending September 20th showed Copper Managed Money traders net bought 250 contracts and are now net short 4,112 contracts. Non-Commercial & Non-Reportable traders are net short 20,898 contracts after net selling 2,493 contracts.

ENERGY COMPLEX:

At this point the energy complex is likely locked in a downward motion unless a fresh and significant supply threat materializes. As of this writing, the most threatening supply issue is the approach of tropical storm/hurricane Ian, but that storm track has been consistently shifted away from Gulf of Mexico production areas. Certainly, some disruption of shipping and oil platform activity is likely given precautions already undertaken, but lasting supply disruption is unlikely at this time. Movement toward a price Cap on Russian oil by the EU has failed to spark threats from Putin and has also failed to support crude oil prices in the early going. In fact, the talk of an enforceable EU oil embargo of Russian oil will obviously reduce outlets for Russia and adding into the negative track this morning is a 20% increase in global crude oil in floating storage over last week and significant weakening of purchasing power of nearly all non-dollar currencies.

While the gasoline market rejected a sub $2.30 trade last week and temporarily held well above the early September low, the outside market pressure from falling crude oil and deteriorating macroeconomic issues leaves significant pressure on prices. However, recent mobility readings showed decent demand and a refinery fire in the US last week provides cushion to gasoline prices.  The diesel market clearly held up better than the rest of the petroleum markets with a previous consolidation low support zone starting at $3.12 initially holding up prices despite an early failure of that level last week.

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British Pound notes

BEANS:

The soybean market looks vulnerable to more selling over the near term, especially if actual yields reach or exceed current expectations. The two week outlook for US harvest is near ideal with warm and dry conditions expected. In addition, Argentina soybean exports are picking up now, and product exports should pick up soon as farmers have sold an estimated 12.8 million tonnes of soybeans since the devaluation, according to the Buenos Aires Grain Exchange. There were reports of 26,000 trucks loaded with soy arriving at river ports last week, the most for any week in September since 2015. Biodiesel usage and production is increasing rapidly and should eventually provide support to soybean oil.

CORN:

December corn closed sharply lower on the session last Friday, but the market managed to hold above the previous week’s low. This is a relatively positive performance given the collapse in many other agricultural commodities. The surge in the US dollar, a collapse in energy markets and a very sharp break in the stock market helped to keep the demand tone bearish. The weather outlook also suggests active harvest activity over the next two weeks. Traders are still nervous that actual yields may come in lower than expectations and this would tighten the stocks situation significantly.

WHEAT:

December wheat closed sharply lower on the session last Friday as bearish outside market forces and talk of a record high crop from Russia helped to pressure. A massive rally in the US dollar plus weakness in nearly all commodity markets helped to pressure. Traders see high yields for Russia’s spring wheat crop as a bearish factor. The surging US dollar to the highest since 2002 should help to further reduce demand for US wheat. Weekly export sales for wheat already dropped to the lowest since May last week.

HOGS:

December hogs gapped lower on the open on Friday and closed sharply lower. The seasonal increase in slaughter combined with last week’s slaughter running well above a year ago helped trigger a sharp, three-day selloff. However, last week’s slaughter and production were down from last year. The USDA estimated hog slaughter came in at 475,000 head Friday and 134,000 head for Saturday. This brought the total for last week to 2.538 million head, up from 2.465 million the previous week but down from 2.583 million a year ago. Estimated US pork production last week was 534.5 million pounds, up from 517.6 million the previous week but down from 545.6 million a year ago. The large discount of futures to the cash market might help provide some support to the market soon.

CATTLE:

The USDA Cattle on Feed report had August placements at 100.4% of last year versus trade expectations of 97.9% (range of 93.2% to 100.9%). This was bearish against expectations for the December and February live cattle contracts. Marketings came in at 106.4% of last year. The average estimate was 105.4% with a range of 99.8% to 106.5%. The news was supportive for cash and possibly October cattle. Cattle on Feed supply as of September 1st came in at 100.4% of last year versus the average estimate of 100.1% (range of 99.0% to 101.3%). This was bearish. The news was positive for the cash market for the immediate future as more cattle moved in August than traders had expected.

COCOA:

Cocoa is traditionally one of the more economic sensitive commodities, so the “risk off” mood following last week’s FOMC meeting results has driven prices sharply to the downside. While the market is technically oversold and well into “bargain” price territory now, cocoa will need to see clear improvement in global risk sentiment in order to regain upside momentum. December cocoa started out with a gap-lower opening and remained on the defensive all day as it reached a new 2022 low before finishing Friday’s trading session with a heavy loss. For the week, December cocoa finished with a loss of 113 points (down 4.8%) which was a second negative weekly result over the past 3 weeks.

COFFEE:

Last week’s Fed rate hike increased concern about commodity demand destruction, but while there were selloffs across most markets last Friday, coffee had a positive weekly reversal from last Monday’s 4 ½ week low. While the coffee market may experience some volatility ahead, bullish supply factors could spark a new leg higher. December coffee continued to see coiling action, but managed to hold within its recent consolidation zone before finishing Friday’s trading session with a moderate loss. For the week, however, December coffee finished with a gain of 5.35 cents (up 2.5%) which broke a 3-week losing streak.

COTTON:

December cotton sold off sharply Friday and closed 4.00 cents lower, the daily limit. Limits expand to 5.00 for Monday. It was the lowest close since July 25. The market was down 6.75 on the week. It has closed lower in three of the past four weeks and is down 27.05 (-23%) since putting in a secondary top on August 15. Cotton was pressured by a sharply higher dollar on Friday, which marked another new 20-year high. Traders are blaming the strong dollar and worsening economic outlook for the selloff in cotton. The worry is that tightening by the major central banks will induce a global recession and crimp cotton demand.

SUGAR:

While the sugar market has seen wide-sweeping coiling price action over the past 2 weeks, it has been unable to climb above its 50-day moving average. Unless there is significant improvement in key outside markets and global risk sentiment, sugar prices are likely to remain on the defensive early this week. March sugar was unable to shake off early pressure as it finished Friday’s trading session with a sizable loss. For the week, however, March sugar finished with a gain of 8 ticks (up 0.5%) which broke a 3-week losing streak and was a positive weekly reversal from last Monday’s 13-month low.

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