Weekly Futures Market Summary May 24th


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June Bonds ended last Friday higher after trading to their highest level since May 11. They also closed higher on the week but confined to the consolidation of the past four weeks. The market drew some support on lowered expectations for this week’s jobs reports, with Dallas Fed President commenting that businesses are still having difficulty finding workers, limiting the amount of positions getting filled. Despite strength in global equities, metals and energies treasuries are tracking higher early this week with treasury bonds reaching a 9 day high albeit with a very narrow range.


After being poised for a break below its February lows, the June Dollar Index reversed course last Friday and moved back to higher on the day. The dollar may have garnered support by a stronger than expected Markit Manufacturing PMI, which came in above April’s all-time highs, as that lent support to ideas the Fed will be moved to start tapering sooner. On the other hand, expectations for this week’s jobs data are slipping, as employers continue to complain about a lack of available workers. While the dollar has managed to consolidate after a tremendous slide early in the month, fundamentals continue to sit in favor of the bear camp.


US equity markets were mixed last Friday, with the S&P and Dow seeing mild support and the NASDAQ under mild pressure as US economic data came in mixed. May Markit US “Flash” manufacturing PMI came in at 61.5, a record high and counter to expectations for it to come in slightly lower than the previous record of 60.1 in April. Composite PMI came in at 68.1, also a record. The previous record was 63.5 in April. April Existing Home Sales fell 2.7% in April to a seasonally adjusted, annualized rate of 5.85 million units. This marked the third straight month of declines, but it was attributed to tight supply, not low demand. Global equity markets at the start of this week were mostly higher with gains typically running less than 0.5%. Despite significant volatility in crypto currencies (which can signal overall market anxiety), the bull camp appears as if it has entered a new trading week with a slight edge.


The question for the gold and silver trade to start the new week is what the focus of the trade will be, with last week’s focus ending on concern that the Chinese government may be poised to “intervene and deflate” industrial material prices. Certainly the action in the currency markets remains a potential supportive issue that could rescue the bear camp in the event last week’s downside volatility in recent highflying industrial material prices, resumes in earnest. However, it will take a decline in the Dollar index below Friday’s downside breakout low to give the bull camp a definitive currency lift for gold and silver prices. In the current condition, gold and silver benefited last week from the idea that the Fed is not quite ready to begin to pare bond buying but it could take a rise above 157-26 in June bonds to provide gold and silver with fresh low rate buying wave.

Obviously, the June palladium contract broke down aggressively through a key psychological level of $2,800 last Friday, but given the highest trading volume on breaks since February 21st, it would appear as if the bear camp has seized control. In fact, the market failed to garner support from a UBS forecast last week of a 1 million ounce global deficit with particular note of a 10-year chain of world deficits in that forecast analysis! Apparently, UBS thinks that the significant spread difference between palladium and platinum is now resulting in substitution! Despite the significant washout in palladium last week, UBS remains bullish with a rally to $3,100 predicted in the 2nd half of 2021.


While we do not think the copper market is a primary target of the Chinese government in their threats to dampen inflation, all physical commodities (in particular metals) are vulnerable. Fortunately for the bull camp, the latest copper positioning report did not show a burdensome net spec and fund long and given that the market since the report fell $0.23, the spec positioning should now be mostly balanced already. From a long-term perspective, world production of copper could be reduced in the event that Chile passes restrictions on mining near glaciers.


There were a number of bearish forces combining to keep pressure on crude oil prices to start this week, but instead crude is showing a noted range up move. First and perhaps most importantly, the market is watching China for any signs that they will purposefully foster liquidation sentiment throughout many physical commodity markets. A major supply-side negative looming in the market recently is Iran’s optimism of a quick end to nuclear sanctions and their capacity to increase production and exports after those limitations are removed. Seeing Iran present an extra 400,000 to 600,000 barrels per day would obviously increase the bull camps need to get hard evidence of improving demand.


Weather remains near ideal, and Covid issues globally continue to worsen in spots which is hampering demand. Palm Oil has its biggest weekly loss in nearly two months as the market looks to the resurgence of Covid issues. Australia’s canola harvest may exceed last year’s record of 4.28 million tonnes as strong prices have encouraged farmers to plant more land. Estimated area sown to canola has increased 25% to just under 2.9 million hectares. Total harvest could reach 5.3 million tonnes this year assuming 2020 yields.


A good weather forecast plus a long liquidation selling trend are forces keeping the short-term trend down. The corn market is attempting to find a near term floor, and has held key support levels in the past week. China has bought well over 10 million tonnes of US corn in the past few weeks, and the market is trying to absorb the smaller Brazil crop. While the USDA last pegged the Brazil crop at 102 million tonnes, most traders see the crop near 90 million tonnes due to severe dryness early this month. This is a loss of 472 million bushels and Brazil corn prices remain very strong.


The wheat market remains in a steep short-term downtrend as the crop conditions are improving, and the short-term forecast has more rain for Kansas plus plenty of coverage for South Dakota and parts of North Dakota. The 6-10 day forecast calls for slightly warmer than normal conditions and above normal precipitation and the 8-14 day forecast models show wet weather in the central and southern Plains, and some dry conditions for the Dakotas. This leaves the weather as a bearish force. Egypt is tendering for wheat on the world market and traders will monitor the situation closely into the midday today. Ukraine wheat prices have pushed lower over the past week with talk of improved crop weather forecasts for key growing areas. July wheat closed lower for the fifth session in a row on Friday but managed to bounce well off the lows into the close. The selling pushed the market down to the lowest level since April 21. News of very high yield potential for the Kansas wheat crop plus talk of a good rain across the Dakotas helped to pressure. The sharp selloff has left the market somewhat oversold.


The hog market remains in a steep uptrend and some contracts experienced upside breakout on Friday to drive futures to the highest level since August 2014. Continued strong demand signals plus continued seasonal decline in supply are factors which have helped to support. The USDA pork cutout, released after the close Friday, came in at $118.84, up from $117.55 on Thursday and $113.52 the previous week. The CME Lean Hog Index as of May 19 was 111.44, down from 111.62 the previous session but up from 110.94 the previous week. June hogs closed sharply higher on the session Friday and the buying pushed the market up to the highest level since May 7. The continued strong advance in pork values has helped boost packer profit margins and this should support a continued advance in the cash markets this week.


The Cattle on Feed Report Friday was considered bearish across the board, as placements, marketing and on-feed numbers all came in at the bearish end of expectations. Placements for the month of April were 127.2% of last year, which was well above the average estimate of 120.7% and even above the highest estimate at 123.7%. This is particularly bearish for the deferred contracts. Marketings in April were 132.8% of last year, which was slightly below the average guess of 133%. The April 1st on-feed number was 104.7% of last year, above the average estimate of 103.7% but within the expected range. This is negative for the nearby contracts. As dramatic as these numbers seem, they are being compared to last year when the whole sector was topsy-turvy due to Covid, so the reaction to this report could be limited.


Cocoa finished last week by breaking a 3-session losing streak, but that was not enough to avoid a negative weekly reversal from last Monday’s 9-week high. If global risk sentiment remains sluggish coming out of the weekend, cocoa is likely to remain on the defensive. July cocoa was able to shake off early and midsession pressure to finish Friday’s trading session with a moderate gain. For the week, however, July cocoa finished with a loss of 18 points (down 0.7%) and its first negative weekly result in 3 weeks. A positive finish to the week for European equity markets and the Dow Jones index provided carryover support to offset weakness in the Eurocurrency and British Pound going into the weekend.


Coffee prices had a downbeat finish to last week’s trading as they were unable to climb above Tuesday’s 2-week high over the following 3 sessions. The market continues to receive bullish supply news that have underpinned prices, so coffee can regain upside momentum and climb up into new high ground if global risk sentiment can regain a positive tone. July coffee shook off early pressure and rallied through midsession, and then fell back on the defensive to finish Friday’s trading session with a moderate loss. For the week, however, July coffee finished with a gain of 5.10 cents (up 3.5%) which was a sixth positive weekly result over the past 7 weeks. The Brazilian currency lost more than 1.4% in value on Friday and reached a new 2-week low, which was a major source of carryover pressure on the coffee market.


Overflow selling from grain markets helped to pressure the cotton market at the start of this week’s trading. December cotton closed higher on Friday but well off the highs of the day. Recent rainfall in Texas has eased concerns about dry conditions in west Texas, and the 6-10 and 8-14-day forecasts call for normal to above normal rainfall in the region. However, a dry trend for the southeastern US in the 6-10-day forecast has raised concerns about conditions there.


After 2 days of tight coiling price action, sugar has broken out to the downside and is more than 1.50 cents below the May 12th multi-year high. Although it continues to be pressured by key outside markets, sugar has a bullish supply outlook that can help to underpin prices early this week. July sugar started out under pressure and reached a new 3-week low as it finished Friday’s trading session with a sizable loss. For the week, July sugar finished with a loss of 29 ticks (down 1.7%) which was a second negative weekly result in a row following a 5-week winning streak.

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