Apparently the Treasury bond market can rally in sync with equities as several US equity market measures made record highs, and yet bonds remained nearly 1 point higher during Friday’s trading. In retrospect, the June nonfarm payroll report was another report offering mixed messages on the economy. Certainly, the headline nonfarm payroll report was better than expectations, but the letdown occurred with an uptick in the unemployment rate. In conclusion, the bull camp is in control with the bullish numbers embraced and the bearish numbers discounted.
The release of the last FOMC policy meeting dialogue is scheduled for Wednesday afternoon and the trade appears to expect the Fed to discount inflation and instead comment about the need to add significant jobs back to the equation. Obviously, the latest employment report was very disappointing which we suspect is the primary basis behind the markets ability to rally bond and note prices in the face of surging oil and grain prices. From a technical perspective, the recent rally has not been well attended but a lack of sellers appears to give the bull camp control with the latest positioning report still showing a very lofty net spec and fund short in bonds.
Non-dollar currencies continued to be out-of-favor with last Friday morning’s US nonfarm payroll report initially providing safe-haven buying of the dollar. However, the dollar reversed course as the trade digested the June jobs report and found some bright spots within the data. In retrospect, the dollar was extensively overbought with the Swiss franc and euro extensively oversold and therefore the reversal action of last week’s trend was not surprising. While the dollar showed a significant initial slide at the start of this week, it definitively rejected that washout and appears to be poised to challenge a critical pivot point zone especially with the dollar recently in a safe harbor mentality.
We see a-number-of negative storylines facing the euro with fears of the rapid transmission of the variant virus combined with the potential for less accommodative central bank policy (because of rising inflationary pressures) serving to undermine recovery currencies like the euro. In fact, the euro does not appear to be benefiting from positive euro zone retail sales and strong business optimism in Germany. Fortunately for the bull camp the net spec and fund long in the euro is very modest with the market into last Friday’s low falling by 100 points from the COT report mark off date. The June 29th Commitments of Traders report showed Euro Non-Commercial & Non-Reportable traders reduced their net long position by 7,902 contracts to a net long 134,566 contracts.
The “Goldilocks” environment for equities continues to extend into the future with last Friday’s June jobs report providing a measure of optimism from the large jump in actual payrolls. Surprisingly, investors were not put off by an increase in the unemployment rate and a decline in the average workweek and a smaller than anticipated increase in wages. Investors also discounted EU warnings for Apple against privacy violations, while a 737 cargo plane crash landed in the Pacific Ocean thereby rekindling anxiety toward Boeing shares.
In a very impressive early-week trade, the NASDAQ forged a new all-time high despite signs that China continues to crackdown on consumer tech companies under the guise of protecting national security. While not overly active in trading volume the NASDAQ maintains a “net short” spec positioning signaling a market with buying fuel on the sidelines. The Commitments of Traders report for the week ending June 29th showed Nasdaq Mini Non-Commercial & Non-Reportable traders net sold 936 contracts and are now net short 20,495 contracts.
GOLD, SILVER & PLATINUM:
While the expectation of inflation has not been consistently embraced by precious metal markets, it would appear a measure of inflationary sentiment is serving to lift commodity prices. The source of the inflationary spark is the surge in energy prices following the inability to reach a deal for returning production withheld by OPEC plus members. Yet another source of inflationary psychology is the looming US Federal Reserve meeting minutes scheduled for release on Wednesday. While a potential temporary influence, it should be noted that the latest two days of infection count readings from the US (July 1st and July 2nd) registered lofty 17,911 and 15,515 cases respectively and that combined with continued highly contagious spread could put the Covid 19 storyline back in a front and center standing.
Even the sluggish platinum market is showing strength early this week but has only engineered a 5-day high, with resistance pegged at $1,116.10 and solid consolidation low support not seen until all the way down at $1,050. Like palladium, the platinum market saw significant liquidation in open interest since its key high back in February (-30%), and therefore the market could rally impressively before becoming overbought. Platinum positioning in the Commitments of Traders for the week ending June 29th showed Managed Money traders net bought 3,261 contracts and are now net long 5,143 contracts. Non-Commercial & Non-Reportable traders are net long 22,455 contracts after net buying 988 contracts.
Like many other physical commodity markets, the copper market has started the holiday shortened trading week out with a significant upside breakout and a 13-day high. According to press reports, copper was partially lifted by a surge in fund buying off inflationary interest, but we also suspect that some of the buying was technical in nature. The inflationary buzz is likely the result of surging energy prices after an OPEC plus meeting was adjourned without a consensus which in turn leaves production restraint in place.
Obviously, the energy markets were surging early this week because of the breakup of the OPEC plus meeting without an agreement. Apparently, the breakdown in talks results in a maintenance of current production levels which the trade believes are insufficient to avoid further tightening of world oil inventories. It appears that Saudi Arabia and the United Arab Emirates are at odds over the allocation of production allowed to resume. In fact, some press outlets were suggesting Saudi Arabia and the UAE are in a “bitter fight” which could mean several days of standoff! Therefore, the trade is rushing to factor in the view that crude oil stocks will continue to “fall fast” at-the-same-time that global demand continues to recover.
In looking back at last week’s EIA inventory data, both EIA distillate and EIA low sulfur diesel inventories are at substantial year-over-year deficits. Furthermore, talk that air travel is beginning to expand (not verified by daily TSA security checkpoint numbers yet) means that the bull camp is getting help from supply and demand. The June 29th Commitments of Traders report showed Heating Oil Managed Money traders added 8 contracts to their already long position and are now net long 32,363. Non-Commercial & Non-Reportable traders net bought 1,692 contracts and are now net long 47,307 contracts.
November soybeans started this week under pressure, which suggests weakness in the palm oil market from softer Indian demand has created a minimally bearish environment to start the US holiday shortened trading week. On the other hand, the weather forecast for the Dakotas did not see relief, while areas in Iowa saw widespread coverage but of very low rainfall totals. However, Iowa is expected to get good rains in the next 5 days and rain is expected to stretch across northern Illinois South Dakota and southern Minnesota. Fortunately for the bull camp, the 6-to-10-day forecast calls for drier and warmer conditions in the Dakotas.
In addition to a slightly bearish shift in near term US weather forecasts, the corn market is undermined as-a-result of news that China will auction 123,954 tonness of “imported corn from the US” on Thursday. Furthermore, the Chinese also plan to auction 6340 tons of imported corn from the Ukraine bringing the overall net auction supply to 130,294 tons. However, at the end of last week Brazil indicated that 2nd corn production in the center South was likely to be 5.4 million tonnes below the level forecast in May! Apparently after 12% of the 2nd corn crop was harvested frost damage has been confirmed. Fortunately for the bull camp, the net spec and fund long in corn has already declined by almost half of the level seen in January of this year.
Chicago wheat’s whipsaw price action in the wake of last Wednesday’s Acreage and Stocks reports still results in a weekly gain and a positive weekly reversal from a 2 1/2 month low. With prices finishing the week more than 40 cents below Thursday’s high, however, the wheat market may have trouble finding its footing early this week. September wheat closed sharply lower for last Friday’s session, but managed a gain of 12 cents for last week after the market experienced follow-through technical selling after Thursday’s hook reversal. September KC wheat also posted a sizable loss on Friday but finished the week with a gain of 10 1/4 cents. December Minneapolis wheat closed higher on the session as the market gained 32 cents for the week with a new contract high posted last Thursday. On Monday, September Paris milling wheat futures declined by 4.50 down to 200.50 Euros.
The chart pattern turned bearish last week, as August hogs turned away from the initial key resistance level of 105.67 and followed that with slightly lower close on Thursday. The sharp discount of the futures to the cash market have lent support, but ongoing concerns over the potential for reduced export activity in the months ahead are a force of pressure. Pork exports for May reached 687.78 million pounds, up 11% from a year ago. Exports to China came totaled 160.12 million pounds, was below the record 253.3 million pounds from May 2020. Exports represented 33% of total US production, which was a record.
August cattle have managed to hold support in the face of lower cash and beef prices, but the market has drifted back to the lower end of the June consolidation, and it will be important to hold those levels to avoid a steeper selloff. Beef prices have declined steadily for three straight weeks, but they are still well ahead of last year, and the lower-than-expected placements number in May suggests lighter supply this fall. August cattle closed sharply lower on Friday but managed an inside trading day. The market experienced choppy and two-sided trade early in the session, but sellers turned active with weakness seen in many agricultural markets.
Cocoa prices finished last week’s trading squarely on the defensive as prices fell nearly 100 points from Thursday’s 1 1/2 week high to Friday’s 8-month low. Open interest has reached a 13-month high, indicating that funds have built up a sizable short position over the past few weeks. With technical indicators reaching oversold levels as prices have fallen into “bargain” territory, cocoa may be closing in on a near-term low. September cocoa found early support, but fell back under pressure at midsession before finishing Friday’s trading session with a sizable loss. For the week, September cocoa finished with a loss of 61 points (down 2.6%) which was a sixth negative weekly result over the past 7 weeks.
Coffee’s change in fortune at the start of this month has taken prices well below their recent highs as last Friday’s close was the first below its 50-day moving average since early April. With bearish near-term supply developments in Brazil weighing on prices, coffee is likely to see further downside action early this week. September coffee followed through on Thursday’s wide-sweeping outside-day down as they reached a 1-week low before finishing Friday’s trading session with a sizable loss. For the week, September coffee finished with a loss of 4.75 cents (down 3.0%) which was a fourth negative weekly result over the past 5 week and a negative weekly reversal from last Thursday’s 4-week high.
December cotton gapped higher at the start of this week and came close to testing the June 11 high. There are concerns that the heavy rains that are expected to reach the southeastern US when Tropical Storm Elsa makes landfall in Florida early Wednesday that could damage crops. In just two and a half sessions, the market has recovered all the losses it incurred in the aftermath of last Wednesday’s USDA Acreage Report. The report showed US cotton plantings coming in lower than the March estimate and below the published average trade expectation, but the number was still apparently larger than what some traders had hoped, as the market sold off sharply in the wake of the release.
Sugar prices have been able to extend their recovery move into early July due in large part to fresh bullish supply-side developments. With carryover support from a key outside market, sugar could reach a new multi-year high early this week. October sugar built on early strength and shook off a midsession pullback as they finished Friday’s inside-day trading session with a moderate gain. For the week, October sugar finished with a gain of 84 ticks (up 4.9%) which was a second positive weekly result in a now.
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