After making a higher high for the move and printing the highest price since the end of February, September bonds fell back from their highs last Friday in the wake of a much stronger-than-expected University of Michigan sentiment reading. It is also possible that longs decided to bank profits from last week’s large run-up, and it is also possible that a wave of inflation press coverage has prompted longs to exit. While treasury bonds did not make a fresh high for the move early this week (3 1/2 month highs) prices remain near the upside breakout point and the psychological pivot point of 160-00 in September bonds. Apparently, the trade continues to embrace the idea that the US Fed will live up to its convictions of holding rates low in the upcoming meeting until job readings show several large gains in sequence.
The June 8th Commitments of Traders report showed Bonds Non-Commercial & Non-Reportable traders net bought 22,834 contracts and are now net short 126,376 contracts. For T-Notes Non-Commercial & Non-Reportable traders reduced their net short position by 97,316 contracts to a net short 43,432 contracts. The North American session will only have one top-tier data point, an April reading on Canadian manufacturing sales that is expected to have a sizable downtick from March’s 3.5% reading.
The dollar index exploded higher last Friday in the wake of much stronger-than-expected US Michigan consumer sentiment data and perhaps from news that other central banks were willing to hold onto stimulus despite growth. It should be noted that the rally in the dollar was broad-based suggesting a retest of 30-day highs is possible this week. While the dollar did not break out to the upside early this week, it remains close to new high for the move ground and seemingly poised to extend last Friday’s significant range up move. Certainly, US scheduled data has not been indicative of an even and growing US recovery, surging treasury prices and a full reopening of the US is likely to garner additional flows to the dollar.
Like the dollar, the euro did not extend its trend from last week, but we expect a fresh lower low for the move ahead. While the euro zone is also progressively reopening sectors of the European continent, the European reopening does not appear to be gaining as much press coverage as the US reopening. It is also likely that the ECB decision last week to remain on hold despite growth and inflation signals is undermining the euro from a macroeconomic interest rate differential perspective.
The US equity markets waffled around both sides of unchanged last Friday despite the S&P forging early all-time highs. Clearly the markets were undermined as-a-result of a drift into negative territory in both bonds and notes following a much stronger than expected University of Michigan sentiment reading. Perhaps some longs decided to bank profits following the news of a positive test of 2 passengers on a cruise ship or perhaps some longs exited for fear of a serious expansion of the recent Covid outbreak in southern China.
While the NASDAQ has not forged an all-time high with the upside extension early this week, the trend in the index is pointing up and tech sector news is positive, following conciliatory and or cooperation from Google, to offer email upgrades to small businesses and given a group of tech companies soliciting for open radio access network development the bull camp has several themes in its favor. Nasdaq Mini positioning in the Commitments of Traders for the week ending June 8th showed Non-Commercial & Non-Reportable traders are net short 17,959 contracts after net buying 5,428 contracts.
GOLD, SILVER & PLATINUM:
While the dollar index did not make a new high for the move at the start of this week, prices sit just under 7-day highs and have giving off the impression of an upside breakout and extension ahead to the 91.00 level. Therefore, it would appear as if the currency impact on gold will remain bearish in the near-term, but news of a reopening of Indian retail jewelry outlets late last week offers some fresh demand hope and could cushion prices slightly. In addition to divergence between gold and silver at the end of last week, the gold bulls were also undermined as-a-result of G7 talk of a global minimum tax. Some traders suggested that the hard slide in gold and rally in the dollar were the result of a slight shift in favor of the Fed beginning tapering earlier than expected given recent US and global CPI readings.
Like the palladium and the gold market, the platinum charts remain negative and a sustained downtrend from the May high continues to unfold. However, platinum should draft support from the potential pickup in diesel catalyst demand, with Europe rapidly reopening and the ECB indicating they would leave supportive policies in place despite signs of growth and inflation.
All things considered, the copper market has held up impressively in the face of a strike settlement in Chile, fear of a possible virus breakout in southern China and in the face of threats from the Chinese government to release strategic material supplies in-an-attempt to knock prices down. In fact, the copper market has managed to stand up to a-number-of bearish fundamental developments and in turn manage to consolidate and waffle around the $4.50 level for nearly 4 weeks.
Once again the crude oil market ground its way into a new high to start the trading week. Therefore, it is possible that some fund trading systems will place additional buy orders and in turn provide crude oil with upside follow-through. Obviously, the trade is anticipating a surge in demand despite-the-fact that various global scheduled data points have not shown even growth and certainly have not displayed acceleration as was expected with progressive reopening of the US economy. In fact, a growing list of US states are at fully opened status and the schools are ending their year and vacation driving should pick up. Adding into the bullish bias is news that global floating storage of crude oil on the week declined by 2.2%, with Asian-Pacific floating storage down by 6%.
With a massive range up extension at the end of last week, it would appear as if the natural gas market has come into vogue among fund traders. In fact, given the rising expectation of inflation, traders and fund managers might consider natural gas one of the cheapest commodities and therefore a possible hedge against building inflation. On the other hand, extreme heat in the US has escalated consumption early on and has prompted some concern that the long-held inventory surplus will be narrowed ahead. Furthermore, Asian prices remain firm as tighter Australian supply flow has prompted buying of alternative supply and in turn fostered fear among the net spec and fund short. However, the latest weather forecast shows a narrowing of extreme heat in the US to the extreme Northwest and extreme southeast and therefore prices could be vulnerable. This week’s Baker Hughes rig drilling counts showed a decline of one in the US, while Canadian gas rigs operating were unchanged.
The forecast appears less threatening today as compared with late last week. The 5-day forecast shows no rain for the Dakotas or most of Nebraska. Iowa and southern Minnesota look to receive 1/2 to 1/4 inch. The 6-10 day forecast shows below normal precipitation for the Dakotas and Minnesota, but normal for Iowa and Nebraska and above normal for the eastern Corn Belt. The heat moves all the way to the Western third of the country with mostly normal temperatures expected for the Midwest. The 8-14 day forecast models show normal temperatures and above normal precipitation; except North Dakota stays dry. For the NOPA crush report, traders see crush for the month of May near 165.12 million bushels, 160.3-169.6 range, as compared with 169.58 million bushels last year. Oil stocks are expected near 1.713 billion pounds, 1.63-1.83 range. November soybeans managed to close 3 1/4 cents higher on the week last week.
The weather is shifting from hot and dry for the Western Corn Belt to more normal temperatures and precipitation, and even above normal precipitation in the 8-14 day timeframe. On top of more normal weather, concerns about ethanol demand helped to drive the market sharply lower on Friday and again overnight. The Biden Administration is under pressure from labor unions and Senators and are considering ways to provide relief to US oil refiners from biofuel blending mandates. RINS have recently traded at their highest price ever and were down 15% on Friday. Apparently, there were discussions about ways to lower the amount of renewable fuel refiners must blend or options like a nationwide general waiver exempting the refining industry from blending requirements.
Better weather for the other grains may spark early weakness this week, but the weather forecast for the spring wheat crop is still threatening. More extreme heat is expected short-term and there is no rain in the five day forecast for the Dakotas. The 6-10 day forecast calls for below normal precipitation as well. July wheat closed 3 cents lower on the session Friday and well up from the early lows. The selling pushed the market down to the lowest level since June 3rd. Talk of increased harvest selling pressure ahead plus weakness in the other grains helped to pressure. The market closed 7 cents lower for the week.
The USDA pork cutout released after the close Friday came in at $130.66, down from $132.18 on Thursday and $131.70 the previous week. A weaker trend for pork could be a sign that short-term demand is saturated. July hogs closed sharply lower on the session Friday and down 75 points for the week. The selling pushed the market down to the lowest level since June 4 as the premium of futures to the cash market and fears that export demand may begin to slide helped to pressure. In addition news of higher weights last week in a timeframe when weights normally declined is a bearish development. The market remains extremely overbought technically and vulnerable to long liquidation selling. The CME Lean Hog Index as of June 9 was 119.91, up from 118.71 the previous session and 114.05 the previous week. The USDA estimated hog slaughter came in at 457,000 head Friday and 53,000 head for Saturday. This brought the total for last week to 2.440 million head, up from 1.975 million the previous week but down from 2.464 million a year ago.
It is a rare event that August Cattle trade at a discount to August Hogs as they did earlier this month, and it appears that the pattern has reversed. The hog market is having a difficult time rationalizing the very high price, and there is concern that China’s pork import demand could drop off for the second half of the year. While traders sometimes expect increasing beef supply and weakening demand at this time of the year, feedlots seem current with marketings, and demand appears to be stronger than normal as the economy recovers from COVID. The pipeline is expanding as restaurants re-open. The boxed beef market has recently climbed to its second highest level on record. Only last year was higher when packers could not keep slaughter operations running because of COVID. The current rally leaves packer profit margins very high, and this could hold August Cattle in a minor uptrend. August cattle closed sharply higher on the session Friday and the buying pushed the market up to the highest level since May 26.
Cocoa prices continued to see choppy price action this month and remain near the lower end of their 2021 trading range as near-term demand concerns and sizable West African main crop production remains front and center issues. The market has held its ground above the early May lows, however, which would indicate that cocoa is close to a longer-term low. September cocoa was unable to shake off early pressure as it could only put together a modest rebound late in the day before finishing Friday’s trading session with a moderate loss. For the week, September cocoa finished with a loss of 50 points (down 2.0%) which was a fourth negative weekly result in a row.
Coffee prices have seen coiling price action since reaching a multi-year high on June 1st, and that leaves the market vulnerable to a downside breakout early this week. With a bullish supply outlook, however, coffee prices should be well supported on a near-term pullback. September coffee found early strength, and then gave up those early gains as it finished Friday’s trading session with a moderate loss. For the week, September coffee finished with a loss of 4.05 cents (down 2.5%) and a second negative weekly result in a row.
December cotton was down sharply at the start of this week, and closed lower last Friday after trading to its highest level since February 25 which is a bearish technical development. December cotton has closed higher for four weeks in a row, and the nearby contract closed higher for its second straight week. The dollar was up on Friday, with the September Dollar Index breaking out of a week-long consolidation to trade to its highest level since June 4. The USDA raised new crop and old crop exports in last week’s monthly supply demand report, which resulting in a 0.20 million-bales decrease in the ending stocks forecast for 2021/22 to 2.90 million bales, the lowest since 2016/17 and one of only four times they have been below 3 million this century. At 89.30 million bales, world ending stocks are the lowest since 2018/19, but they are far from historic lows.
Sugar prices continue to hold their ground within a fairly tight consolidation zone as seven of the last 9 closes (including the last 4 in a row) have been within a 10 tick range. This inability to benefit from recent strength in key outside markets may be setting the stage for a downside breakout, but a bullish longer-term supply outlook should help sugar prices stay fairly well supported on a near-term pullback. October sugar came under early pressure before turning back to the upside late in the day as it finished Friday’s trading session with a mild loss. For the week, October sugar finished with a loss of 10 ticks (down 0.6%) which broke a 2-week winning streak.
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