Last Friday’s European data included a stronger than expected UK construction PMI and a weaker than forecast Euro zone retail sales reading. The main event of the day was the latest US jobs data which showed a 14-month low in unemployment, but also had non-farm payrolls come in well below trade forecasts for a second month in a row. Canadian unemployment had a minimal uptick as expected while US factory orders had a larger than forecast decline. Treasuries climbed up to 1-week high and went on to post solid gains for Friday’s trading session. As is usually the case, treasury prices forged a 2nd day of reaction to the monthly nonfarm payroll report which came in softer than expected. In fact, chatter over the weekend suggests the Fed likely saw the report as a positive but not enough to begin tapering talks.
The Dollar fell back on the defensive and finished Friday’s trading session with a moderate loss. Weaker than expected readings for non-farm payrolls and factory orders pressured the Dollar as they could make the Fed hold off on potential tapering measures. On the other hand, the British Pound regained upside momentum following a positive result for UK construction PMI. While the dollar obviously benefited from the disappointing US nonfarm payroll report, it has traded near the lower end of the large Friday range, as if the payroll report was a fleeting support.
While the euro may remain under pressure due to the shift in sentiment in favor of the dollar, we suspect the 1.210 level is very solid as support. While German factory order data in April on a year-over-year basis jumped by 78.9% factory orders on a month over month basis fell by 0.2%. In favor of the bull camp is a Spanish industrial output reading for April which jumped 48.2% on a year-over-year basis. We see the Euro bull trend resuming, but not early this week. The June 1st Commitments of Traders report showed Euro Non-Commercial & Non-Reportable traders are net long 186,323 contracts after net buying 2,743 contracts.
While the upside breakout in the Yen was not significant, we think the Yen has bottomed and could soon become a “recovery currency”, with the Yen extremely cheap relative to the post subprime crisis period. However, those getting long the Yen probably need stops placed below 90.65. The corrective track continues in the Swiss with the pattern of lower highs stretching to 4 days and a lack of positive vibe toward “recovery currencies” overall. We do not think the uptrend in the Swiss is complete but any fresh long positions should be established closer to 1.10 than to 1.11.
While we see the consolidation action in the Pound over the prior 30 days as a sign of value around and above 1.4085. Halifax house price readings for May divergent on the year-over-year and month over month readings thereby leaving the Pound trade without fresh fundamental news. Obviously, critical support could be tested early this week. Like the Pound, we see the Canadian building a base or shelf from which it should eventually launch into a higher high trade. In the meantime, the market is underpinned by the theory that the Bank of Canada will remove stimulus quicker than the US.
Global markets were able to shake off early pressure and regain a positive tone midway through last Friday’s trading session. The Fed’s Mester said that it was a solid employment report, but she wants to see further progress while President Biden said that the US government will take steps on supply chain issues over the coming weeks. US equity rallied after the US data releases and went on to post moderate gains.
Global equity markets at the start of this week were mixed with gains and losses insignificant. It appears as if the market has recovered from the early lows, and that could be the result of a landmark G-7 corporate tax deal. In a slightly positive sign, Google has agreed to change its advertising practices following a fine from France.
GOLD, SILVER & PLATINUM:
Volatility looks to extend into the new trading week with a-number-of media reports indicating that while gold is a good hedge against higher rates and ballooning sovereign debt, bitcoin is “better”. However, the bitcoin trade has massive trading volatility and is still in its evolution stage, at-the-same time that China might crackdown significantly on cryptocurrencies. Treasury Secretary Yellen in an interview over the weekend indicated that the president should press forward on a $4 trillion infrastructure bill, even if it creates inflation with other analyst/fund managers indicating that higher interest rates could be positive to the US economy as that would give more income to those relying on fixed income investments. On the other hand, the G7 is pushing for a digital services tax and a higher/uniform global corporate tax rate agreement.
While the palladium market lost its bullish dominance early last month, the corrective slide was justified given a softening of global economic psychology. However, the markets were presented with Chinese import and export data for May, but the data was offsetting. We suspect that palladium has balanced its technical condition and removed a large amount of weak handed longs with the May high to low washout of $260. Palladium positioning in the Commitments of Traders for the week ending June 1st showed Managed Money traders added 411 contracts to their already long position and are now net long 3,833. Non-Commercial & Non-Reportable traders were net long 3,298 contracts after increasing their already long position by 692 contracts.
While the weaker than expected US nonfarm payroll reading provides a cushion to copper prices, the main event is likely to be Chinese import/export data for May. Unfortunately for the bull camp Chinese unwrought copper imports declined on a month over month basis and may reportedly the result of record high pricing. From the supply-side of the equation, production continues at a BHP facility in Chile (the world’s largest deposit of copper) despite the strike, with an initial proposal for labor offered at the end of last week. Going forward, a certain amount of hardline negotiating expected from the unions is expected regardless of the terms offered by the company. From the demand side of the equation, the markets last week saw evidence that copper smelting activity recovered further last month, and we suspect China will be buying more refined copper than refining onshore due to pollution control efforts.
The crude oil market continues to be a slow-moving freight train moving higher with the energy markets benefiting from the not too hot, not too cold US nonfarm payroll result. With crude oil prices this year up $21 per barrel and the global economy muddling its way to recovery, one wonders how far prices would have run if pent-up demand from the lockdowns was as concentrated and robust as predicted. On the other hand, the press over the weekend reported that funds were moving back into energies in a sign that inflation interest/trading oil is on the rise again. Another supportive development was seen with reports that crude oil in floating storage coming in 47% lower than year ago levels! Yet another positive was seen from the world’s largest oil trader (VITOL) who suggested that OPEC plus will be able to control the oil market with US production still below pre-pandemic levels and demand recovering enough to absorb recovering OPEC+ supply. Unfortunately for the bull camp, TSA security checkpoint travel numbers remain under 2 million per day and that leaves summer jet fuel demand in question.
The weather forecast is threatening and is likely to support more buying early this week. While it may be too early to do permanent damage, very hot and dry weather for two weeks may drag crop conditions lower. China’s soybean imports rose in May from the previous month as more cargoes from top supplier Brazil cleared customs. China imported 9.61 million tonnes in May, up 29% from 7.45 million tonnes in April, when some Brazilian shipments were delayed. Soybean arrivals in the next two months were expected to exceed 10 million tonnes. China brought in 38.23 million tonnes of soybeans in the first five months of 2021, up 12.8% from the same period last year.
The 2-week weather forecast looks threatening and should support higher trade early this week. Traders will monitor the weekly crop conditions report today and the USDA Supply/Demand update on Thursday. As of May 30th, US corn crop conditions were rated 76% good/excellent, which is above average, but conditions are likely to deteriorate in the next few weeks. Conditions for South Dakota were 67% good/excellent, which is well below normal, and North Dakota’s good/excellent rating was 48% compared with a 10-year average near 80%. For the USDA monthly update, traders see 20/21 ending stocks at 1.203 billion bushels, 1.107-1.277 range, as compared with 1.257 billion bushels in May. For the new crop, traders see ending stocks at 1.417 billion bushels, 1.207-1.507 range, as compared with 1.507 billion bushels in May.
The wheat market was pulled higher by strength in the other grain markets early Monday, but the short-term weather forecast does include decent rain for North Dakota, (3/4 inches to 1 1/4 inches) for much of the state, and there is hefty rain amounts for the Canadian Prairies. December Minneapolis wheat traded down 14 1/4 cents from the highs but was still 12 1/4 cents higher. The longer-term forecast through June 20 shows above normal temperatures and below normal precipitation for the Dakotas, which is somewhat supportive. Hot temperatures in areas that do not receive rain in the next few days could stress the crop. For the USDA Crop Production and Supply/Demand report this week, traders see All Wheat production at 1.89 billion bushels, 1.810-1.973 range, as compared with 1.872 billion in the May USDA update. All winter wheat is expected at 1.308 billion bushels, 1.276-1.393 range, as compared with 1.283 billion in the last USDA update. Ending stocks are expected at 868 million bushels, 775-902 range, as compared with 872 million in the May update. For the 2021/22 season, ending stocks are expected at 781 million bushels, 620-899 range, as compared with 774 million bushels in the May update.
The hog market remains in a solid uptrend and into new contract highs as the continued strong advance in pork values has helped support. While futures hold a premium to the cash, it will take a turn down in pork values in order to assume that a near term peak for futures may be in place. Export sales have slowed over the past few weeks and if China backs away from the import market, pork values might begin to ease. China imported 789,000 tonnes of meat in May, down 3.3% from a year ago and down sharply from 922,000 tonnes in April. Meat imports in the first five months of the year are still up 12.6% for the same period last year. The USDA pork cutout released after the close Friday came in at $131.02, up $1.09 from $129.93 on Thursday and $124.51 the previous week. This was the highest the cutout had been since July 22, 2014 and more than $10 above last year’s high. July hogs experienced choppy to lower trade early in the session Friday but the market closed sharply higher on the day and into new contract highs. The new high leaves a swing target of 121.60.
Slaughter has returned back to normal after the cyber-attack last Monday and with the massive packer profit margins, the cash market tone is positive for this week. With June trading at a discount to the cash, buyers could turn active. The USDA boxed beef cutout closed $1.57 lower at $338.98. This was up from $329.98 the previous week. This was the first decline in five sessions. Cash live cattle traded with a firm tone on Friday. In Kansas 1,978 head traded at 120 versus an average of 119.56 the previous week. In Texas/Oklahoma 2,306 head traded at 120 versus an average of 119.17 the previous week. The 5-day, 5-area weighted average was as of Friday afternoon was 119.90 versus 119.66 the previous week.
The USDA estimated cattle slaughter came in at 119,000 head Friday and 98,000 head for Saturday. This brought the total for last week to 538,000 head, down from 629,000 the previous week and 628,000 a year ago.
While cocoa finished last week with 3 negative daily results in a row, the market has consolidated above its late May low and well above its early May low. With the market oversold and continuing to have a bullish longer-term supply outlook, cocoa could see a sharp rally above its current prices levels. July cocoa was able to rebound from early pressure with a midsession rally, but then fell back on the defensive late in the day to finish Friday’s trading with a modest loss. For the week, July cocoa finished with a loss of just 3 points (down 0.1%) which nonetheless was a third negative weekly result in a row.
Coffee continues to have bullish supply factors and an improving global demand outlook providing underlying support that has lifted prices over 36 cents (up 29%) so far during the second quarter. Recent volatile price action may be showing signs of a near-term overbought market, however, as coffee could see back and fill action this week. July coffee came under early pressure and fell to a 1-week low, but then rallied sharply late in the day to finish Friday’s trading session with a sizable gain. For the week, however, July coffee finished with a loss of 0.70 cent (down 0.4%). While this was only coffee’s second negative weekly result over the past 8 weeks, it was a negative weekly key reversal.
December cotton broke out of a four-day range on Friday and traded to its highest level since May 10. A second strong weekly export sales report in a row lent support to ideas that the interest in US cotton remains strong. The dollar index gave back most of Thursday’s gains, and this lent additional support to the market. The export sales report showed US cotton export sales for the week ending May 27 at 180,765 bales for the 2020/21 (current) marketing year and 98,791 for 2021/22 for a total of 279,556. This was up from 263,609 the previous week and was the highest since April 1. The average of the previous four weeks is 161,200. It was also the highest old-crop figure since April 1. Cumulative sales for 2020/21 have reached 15.727 million bales, down from 16.336 million last year but above the five-year average at 13.909 million. Sales represent 105% of the USDA’s forecast for the marketing year versus a five-year average of 107%. The largest buyer was Pakistan, which bought 74,911 bales for 2020/21 and 24,200 for 2021/22 for a total of 99,111. China bought 43,182, all for 2020/21.
Sugar had a strong start to the second quarter, as the start of Brazil’s Center-South cane harvest reflected the much drier than normal conditions since last year. Brazilian government officials have noted the driest conditions in 91 years with warnings on water scarcity and an emergency drought alert issued in late May, and that drive sugar prices up to much higher prices levels over the near future. July sugar bounced back from a midsession pullback as it finished Friday’s trading with a sizable gain. For the week, July sugar finished with a gain of 35 ticks (up 2.0%) and a second positive weekly result in a row.
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