Weekly Futures Market Summary Sep 7th

Click here for full report

BONDS:

The treasury markets continue to show counterintuitive fundamental trading action early this week. In fact, following a much weaker than expected nonfarm payroll gain of 235,000 (expectations were 750,000) treasury prices fell by three quarters of a point. Apparently, some traders feel that the Fed will be progressing toward tapering because the unemployment rate fell by 0.2 and June and July nonfarm payrolls were revised higher. In the end, the July nonfarm payroll reading was adjusted above “1 million and that is an eye-catching result. Initial weakness in treasury bonds early this week is counter intuitive given the significant “miss” from the US nonfarm payroll report last Friday.

From a technical perspective, the Bond market appears to have ended a pattern of buying back net spec and fund short positions with the specs seemingly turning aggressively bearish on last week’s test of 164-00! Bond positioning in the Commitments of Traders for the week ending August 31st showed Non-Commercial & Non-Reportable traders were net short 107,745 contracts after increasing their already short position by 32,998 contracts. For T-Notes Non-Commercial & Non-Reportable traders were net short 221,106 contracts after increasing their already short position by 190,638 contracts.

CURRENCIES:

The headline US jobs report severely disappointed in yet and oversold dollar index did not experience a wave of short covering buying. However, seeing the data provides a Goldilocks scenario where the Fed holds off and a slowly moving US economy extends into the future. Therefore, recovery currencies like the euro, Canadian, and Pound look to remain the primary benefactors of US dollar weakness. The Dollar is in “bounce” mode at the start of this week with the Dollar index likely seeing short covering buying. However, positive economic news from China and Germany and the prospect of new all-time highs in US equities should have prompted flight to quality liquidation of the Dollar.

Apparently the euro trade is not expecting risk on psychology as the dollar index made inroads against all other actively traded currencies and in turn put the Euro under pressure to start the trading week. Furthermore, the bull camp should be disappointed by the lack of strength in the euro following a surprisingly upbeat German factory output result! Therefore, it is likely that the euro is in a technical corrective track following 4 weeks of very significant gains. Euro positioning in the Commitments of Traders for the week ending August 31st showed Non-Commercial & Non-Reportable traders are net long 53,480 contracts after net selling 4,650 contracts.

While we see the Yen remaining within a sideways chop defined as 91.32 and 90.77, strength in the dollar and very disappointing Japanese coincident and leading economic indicator readings overnight favor the bear camp. With the Swiss franc paying little attention to the ebb and flow of interest in the US dollar, it is not surprising to see the Swiss franc under minimal pressure in the face of today’s dollar rally. However, the Swiss franc should be supported because a downtick in the Swiss August unemployment rate.

STOCKS:

Despite a disappointing headline nonfarm payroll reading, the stock market did not benefit from a likely pushing back of US tapering late last week. On the other hand, disappointment from the jobs data seemed very muted and some bargain-hunting buying appears to have surfaced around the lows in last Friday’s trade. While tech sector stocks performed and managed to hold up the broad market, rising regulatory/legal problems for big tech could signal a rotation in stocks ahead.

Global equity markets at the start of this week were mixed with Asian/Pacific rim markets higher, with Europe trading lower and the US clawing out minimal early gains. While US equities failed to hold all-time highs on Friday, prices remain near those all-time highs and are likely to extend the rally off the view that US tapering was pushed back by the very disappointing US August payroll reading. However, markets should be cheered by positive Chinese export data, better-than-expected euro zone GDP and stronger than expected German industrial output results.

The NASDAQ forged new all-time highs in the early going this week and is likely to add to those gains given the tempering of tapering fears and news that Deutsche Telecom increased its T-Mobile US holdings. However, holding back the tech laden NASDAQ is ongoing signs of Chinese government heavy-handedness with respect to online, data and entertainment shares. Nasdaq Mini positioning in the Commitments of Traders for the week ending August 31st showed Non-Commercial & Non-Reportable traders are net short 15,453 contracts after net buying 3,400 contracts.

GOLD, SILVER & PLATINUM:

The gold market was presented with bullish and bearish news, but clearly embraced the bear side of the equation. From the bull side of the equation, Indian gold imports for August jumped by nearly 50% last month and reached the highest level since the first quarter reportedly from restocking, bargain-hunting buying and festival interest. In fact, on a year-over-year basis India saw its gold imports of 121 tonnes dwarf the 63 tonnes seen one year earlier. However, the trade expects a dollar rebound this week, investment interest in Gold ETF remains very poor (total ETF gold holdings at the end of last week are 6.8% lower on the year), US Treasury yields have jumped early this week and Chinese official gold holdings declined by 0.6% last month versus July.

While December palladium managed to hold above last week’s double low level of $2381 in the early going this week, negative spillover pressure from gold, negative Asian equity market action and residual disappointment from last week’s soft US jobs report could result in a downside breakout and a 7-day low directly ahead. However, palladium should draft support from signs of stronger Chinese exports in August and from news that supply chain bottlenecks in Europe are likely moderating as that allowed for a larger than expected jump in German industrial output in July. Palladium positioning in the Commitments of Traders for the week ending August 31st showed Managed Money traders added 181 contracts to their already long position and are now net long 1,111. Non-Commercial & Non-Reportable traders reduced their net short position by 117 contracts to a net short 175 contracts.

The platinum market is also suffering because of the short-term overbought condition from the rally last Friday, but the trade is also discouraged by another large daily outflow from platinum ETF holdings of 8,986 ounces on Friday which in turn has brought the year-to-date change to a decline of 1.2%. Fortunately for the bull camp, the net spec and fund long in platinum sits at some of the lowest levels in 2 years and that could limit the decline in platinum this week to recent consolidation lows down at $975. The Commitments of Traders report for the week ending August 31st showed Platinum Managed Money traders are net short 5,442 contracts after net selling 1,680 contracts. Non-Commercial & Non-Reportable traders are net long 14,106 contracts after net selling 969 contracts.

COPPER:

Obviously, the copper trade is very disappointed in Chinese August imports of copper, with August imports dropping by 41% from a year earlier. However, year-over-year comparisons are fraught with problems given strategic stockpile sales from China and a pattern of significant declines in weekly Shanghai copper warehouse stocks. Copper should derive some support from upbeat German factory output readings and more specifically because China saw overall exports in August jump by much more than expected! Another supportive development for copper is a new record high Chinese iron ore import reading in August, as many suggest that points to positive forward movement in the Chinese economy.

ENERGY COMPLEX:

Despite several supportive developments, the crude oil market has started out under significant pressure early this week. The discounted bullish developments are reports that 80% of oil output from the Gulf of Mexico remains off-line, the potential development of a western Gulf hurricane, projections that Nigeria’s Delta area oil output may be forced into a lock down by infections and news that Chinese oil imports in August increased. It should be noted that Chinese August oil imports reached a 5-month high but that might have been the result of delayed cargoes scheduled for delivery during adverse weather. Apparently, the trade is concerned about demand destruction with US Delta variant infections remaining very worrisome and there is also concern that US demand could contract given very disappointing US nonfarm payroll readings, but also because of a seasonal contraction in driving demand ahead.

The gasoline market was also trading lower early this week, but is not showing the type of aggressive selling seen in crude oil. Obviously, the passing of the last major 3-day US summer driving holiday signals softer demand ahead as does the ongoing troublesome US daily infection count. In retrospect, the very disappointing US monthly payroll reading last Friday translates into less US driving activity than was anticipated. Therefore, in the coming weeks, alternative data/cell phone activity readings could become extremely important to the ebb and flow of gasoline demand views. Like the crude oil market, the gasoline market last week forged a low to high rally of $0.10 leaving the market short-term overbought. The August 31st Commitments of Traders report showed Gas (RBOB) Managed Money traders are net long 51,062 contracts after net buying 5,704 contracts. Non-Commercial & Non-Reportable traders were net long 50,532 contracts after increasing their already long position by 7,295 contracts.

With the natural gas market massively oversold from the recent low to high rally of $0.56, it is not surprising to see a 3-day low in the early going early this week. However, technical traders suggest a new contract high, massive range and lower action early in the week is indicative of a “classic reversal” top on the charts. Even more discouraging to the bull camp is the fact that as of yesterday 81% of Gulf of Mexico natural gas production remained off-line (1.8 BCF) and yet prices are lower. While the National Hurricane Center has begun monitoring a storm in the Southwestern Gulf of Mexico, that storm probably won’t strengthen significantly given its proximity to land. On the other hand, the National Weather Service prediction center has expanded the area of hotter than normal temperatures in the US to nearly 70% of the country.

BEANS:

China August soybean imports reached 9.488 million tonnes and this pushed year to date imports to 67.009 million tonnes, up 3.6% from last year’s pace. Edible vegetable oil imports so far this year have reached 7.5 million tonnes, up 15% from last year’s pace. November soybeans managed to close higher for a second session in a row on Friday and managed to take out Wednesday’s high. Short covering ahead of the long weekend plus weakness in the US dollar were seen as positive forces. News that exporters reported the sale of 130,000 tonnes of US soybeans sold to China was also seen as a supportive force. Argentina has hiked domestic prices for bioethanol and biodiesel on Monday. Inflation is running near 50% annually and bio fuel prices were updated to remain competitive.

The August 31st Commitments of Traders report showed soybeans managed money traders are net long 69,141 contracts after net selling 14,084 contracts in just one week. Non-Commercial & Non-Reportable traders were net long 41,113 contracts after decreasing their long position by 16,758 contracts for the week. This is an aggressive long liquidation selling trend. For Soymeal, managed money traders were net long 11,856 contracts after decreasing their long position by 8,872 contracts in just one week. Non-Commercial & Non-Reportable traders reduced their net long position by 12,275 contracts to a net long 47,652 contracts. For oil, managed money traders reduced their net long position by 11,681 contracts in just one week to a net long 55,306 contracts. Non-Commercial & Non-Reportable traders are net long 57,043 contracts after net selling 10,099 contracts.

CORN:

December corn closed slightly lower on the session last Friday with an inside trading day. Positioning ahead of this week’s USDA Crop Production and Supply/Demand report helped to keep the trade choppy. Weakness in the US dollar was offset by weakness in the energy markets on Friday but today, the dollar is higher and energy lower. There is continued talk of the possibility of higher acreage for the report, and traders are also nervous with the large net long position from fund traders. Traders expect to see corn yield near 175.6 bushels per acre, 173-177.5 range, as compared with 174.6 bushels per acre in August. Production is expected near 14.901 billion bushels, 14.709-15.116 range, as compared with 14.750 billion bushels in August.

Fall armyworms are marching across the U.S., turning lush green lawns into dull brown as the invasion spreads from Virginia across the northeastern states and beyond. It’s the largest infestation some entomologist have seen in 30 years, and perhaps the most unique. These pests are often found in crops such as corn, rice and sorghum. Armyworms are a huge problem in countries in Africa. Last year, about 15% of the corn crop in the southern African nation of Zambia was infested, according to the U.S. Department of Agriculture. China also had a significant issue last year. China’s top agricultural think tank reduced its estimate for the country’s corn consumption in 2020-21 as high prices bolstered the use of substitutes in animal feed.

WHEAT:

December wheat closed sharply higher on the session Friday and managed to experience follow-through buying from Thursday’s hook reversal. The market turned up from a deeply oversold level and seems to have a positive tilt to the short term demand indicators due to the sharp break in the US dollar. December Minneapolis wheat also closed sharply higher on the day and recovered most of the losses for the week last week. December Kansas City wheat closed 14 cents higher on the session and down just 1 cent for the week.

The August 31st Commitments of Traders report showed managed money traders are net long 11,370 contracts after net selling 612 contracts for the week. Non-Commercial & Non-Reportable traders are net long 13,911 contracts after net selling 3,447 contracts in one week. For KC wheat, managed money traders are net long 47,705 contracts after net buying 314 contracts. Non-Commercial & Non-Reportable traders were net long 42,145 contracts after decreasing their long position by 1,576 contracts.

HOGS:

The hog market is overbought and looks vulnerable to a significant downside correction unless there is a sudden shift to better export demand. China imported 758,000 tonnes of meat for the month of August, down 8.9% from a year ago. China has imported 6.69 million tonnes and meat for the first eight months of the year, up 1.7% from last year’s pace. August imports were lower than July’s figure of 854,000 tonnes. Monthly US pork exports for July came in at 508.2 million pounds, down 8.4% from last year and the lowest monthly total since 2019. Exports represented only 25% of total production versus 33% in May. Exports to China came in at 59 million pounds, down from 260 million pounds in May 2020 and their lowest since early 2019. The weekly USDA export sales reports show China’s commitments for 2021 have reached 344,700 tonnes, well shy of the 561,800 tonnes at this point last year.

The hog market coiled up for much of the week with choppy trade, but the longer-term bearish influences of increasing supply and lower exports will likely force the US to absorb extra pork during September and October. The USDA estimated hog slaughter came in at 463,000 head Friday and 28,000 head for Saturday. This brought the total for last week to 2.398 million head, down from 2.438 million the previous week and 2.466 million a year ago. Friday’s Commitments of Traders report showed managed money traders were net buyers of 4,182 contracts of lean hogs for the week ending August 31, increasing their net long to 83,389. Non-commercial & non-reportable traders were net buyers of 2,629, increasing their net long to 77,151.

CATTLE:

The COT report shows an aggressive long liquidation selling trend from fund traders as beef demand has soured and traders sense that export and domestic demand may weaken as Covid continues to spread. October cattle closed sharply lower on the session Friday and the selling push the market down to the lowest level since July 21. The market has taken out the previous day’s low for eight sessions in a row. Slaughter is coming in a little higher than expected, and the cash market has stabilized in spite of massive margins from the packer. The USDA estimated cattle slaughter came in at 114,000 head Friday and 34,000 head for Saturday. This brought the total for last week to 624,000 head, down from 651,000 the previous week and 635,000 a year ago. The USDA boxed beef cutout was down 23 cents at mid-session Friday and closed $1.50 lower at $336.42. This was down from $345.34 the previous week and was the lowest the cutout had been since August 16.

COCOA:

Cocoa’s abrupt turnaround last Thursday led to a 2-day updraft of 116 points (up 4.6%) as the market shifted focus from ample near-term supply to the prospects for upcoming production. If global risk sentiment can find a positive tone, cocoa may be able to reach new multi-year highs early this week. December cocoa continued to build on early support as it reached a new 2-week high before finishing Friday’s trading session with a sizable gain. For the week, December cocoa finished with a gain of 72 points (up 2.8%) and a positive weekly reversal from last Wednesday’s 3 1/2 week low.

COFFEE:

While coffee prices have started September on a downbeat note, they are holding their ground above their August consolidation zone and well above their August lows. With a bullish supply outlook providing underlying support, coffee may be able to regain upside momentum coming out of the holiday weekend. December coffee continued to hold within a fairly tight range as it reached a 1-week low before finishing Friday’s trading session with a moderate loss. For the week, however, December coffee finished with a gain of 0.80 cent (up 0.4%) and a third positive weekly result over the past 4 weeks.

COTTON:

The technical action remains positive for the cotton market, but the supply fundamentals may sour for the USDA report late this week. December cotton closed higher on Friday, solidly back into a two-week range bounded roughly by 91.80 and 95.00. The dollar sold off sharply for the second straight day on Friday, and this added to support for cotton. The Dollar Index had its lowest day since July 30 and its second lowest since June 28. An industry consultant from India stated that he expects the strong recovery in global apparel trade would continue to keep cotton demand robust over the next 6-12 months. In India, cotton plantings are already near 8% below year ago due to slow monsoon rains for the month of August. Traders are hopeful to see above normal precipitation in the next few weeks which might help ease concerns for the cotton crop.

The US crop has apparently made it through Hurricane Ida unscathed, but shipping could be interrupted. The 6-10 and 8-14-day forecasts call for above normal temperatures and below normal precipitation across the US cotton growing regions. This could allow harvest to proceed at a quick pace.

SUGAR:

While sugar prices have started September by falling back from last Tuesday’s high, the market has held within a relatively tight trading range over the past 3 1/2 weeks in spite of volatile action in its key outside markets. With bullish supply developments providing support, sugar can benefit from stronger global risk sentiment and regain upside momentum early this week. March sugar continued to see coiling price action as they reached a new 1-week low before finishing Friday’s trading session with a sizable loss. For the week, March sugar finished with a loss of 36 ticks (down 1.7%) which was a second negative weekly result over the past 3 weeks and a negative weekly reversal.

Please contact us at 1.877.690.7303 or via email at sales@admis.com for any questions or comments on this report or would like more information about ADMIS research.                                            

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

Latest News & Market Commentary

Explore the latest edition of The Ghost in the Machine

Explore Now