Wkly Futures Market Summary Apr 10.23

BONDS:

As we have indicated last week, treasury prices were likely to return to contract highs and could be poised to forge a spectacular blowoff top rally this week. However, given the wave of softer than expected US scheduled data, it is possible that a portion of last week’s buying interest came from classic economic uncertainty buying instead of buying off fears of Fed overtightening. While it might seem unimportant to determine the specific force behind last week’s treasury rally, it will be important for the bull camp to transition to a market focus on slowing activity if it becomes apparent the Fed will be on hold next month.

However, we see last Friday’s US jobs report as a longer-term fundamental headwind as the US economy continues to “hold up” to the threat of even higher US Fed funds rates in the future. Expectations for the Wednesday US CPI report project a gain of 0.3%, with Thursday’s Producer Price index estimates calling for a mere 0.1% gain. The nonfarm payroll report was not seen by the trade as particularly problematic for the bull camp. As indicated in other market coverage, traders should brace for a 2nd quarter trendsetting sweep of reports later this week.

CURRENCIES:

All things considered, the US dollar’s action last week was quite surprising as an avalanche of disappointing US scheduled data should have thrown the US dollar back to the early February lows. Nonetheless, the recovery bounce in the US dollar should potentially clear the way for a sharp downside extension this week. Keep in mind that US CPI and PPI will be released on Wednesday and Thursday, and soft readings should rekindle downside momentum in the US dollar. With the US dollar trading lower following a generally positive US jobs report last Friday, the trade continues to show bearish resiliency. In our opinion, the markets are anticipating an overall improvement in global sentiment thereby resulting in further outflows from the US dollar because of declining flight to quality conditions.

With a holiday in Europe on Monday the range in the euro is subdued especially with traders waiting for this week’s wave of global inflation readings which kickoff with Chinese CPI readings on Tuesday. However, the euro maintains a bullish resiliency despite the slight uptick in US rate hikes. With an early failure on the charts and renewed fears Japan will see global rates rise, while Japanese rates hold steady, the path of least resistance is down. Seeing the Swiss franc reject a trade below 1.110 last week adds to the credibility of that level as solid consolidation support. However, like the euro, the Swiss franc is likely to chop sideways waiting for signs that global inflation is moderating. While the Pound might see minimal support from the Northern Ireland peace deal, early technical action indicates last week’s erosion has extended into the new trading week. Apparently, the Canadian dollar has found solid support at 74.00 especially with the Canadian economy seemingly maintaining a relatively positive economic track.

STOCKS:

In our opinion, the equity markets are beginning to sense the potential for a pause by the US Federal Reserve in the next FOMC meeting. However, it is also possible that last Thursday’s gains in stocks were simple short covering/position squaring ahead of what could be an extremely volatile opening early this week following the Friday nonfarm payroll report. Looking ahead, traders should keep in mind signs of softer inflation next Wednesday could be a very significant bullish catalyst for the equity markets!

Global equity markets at the start of this week were generally higher with Pacific Rim markets generally lower. While many markets were closed for the Easter Monday holiday, the US nonfarm payroll report for the month of March showed the US economy continues to hold with 236,000 jobs added.

On the other hand, the S&P should be supported following a “not too hot, not too cold” US jobs report and from news of a possible mega buyout in the oil sector. From a technical perspective, the S&P should be supported from an ongoing large net spec and fund short. Big cap stocks in the Dow Jones are off balance to start this week, possibly from renewed concerns of a May interest rate hike. The NASDAQ should see modest support from news that Tesla announced plans to build a mega-pack battery factory in Shanghai but undermined because of a 29% decline in first-quarter global shipments of PCs.

GOLD, SILVER & PLATINUM:

The gold and silver trade start the new trading week under pressure with residual pressure seen from the US nonfarm payroll release on Friday during the US market closure. While the US nonfarm payroll report failed to match expectations, the US economy did manage to spin off 236,000 new jobs, average hourly earnings increased, and the unemployment rate ticked downward which in turn rekindles fear of a US Federal Reserve rate hike next month. Therefore, gold and silver start out on the back foot with gold extending the technical damage from last week into the new trading week. A fresh undermine for gold came from news that Indian gold imports in the prior 12 months declined by 30% (on a Dollar value basis) with higher customs duties and lower prices partially responsible for the decline. However, Indian silver imports increased by 66% in the prior 12 months on a year over basis which according to Bloomberg signals a change in consumer preferences to silver from gold in the country! Total Indian gold imports in the April 2022 to January 2023 time frame were estimated at 600 tons which is significantly below the normal 800-900 tons.

Despite weakness in gold and silver and despite an increase in US rate hike concerns, July platinum posted a higher low and higher high to start the new trading week. However, we are skeptical of the bull case with many commodity markets showing weakness and the trade facing the monthly global inflation report cycle this week.

COPPER:

While there are some reports that US Chinese tensions are deescalating, wargames by the Chinese Navy and a very minimal decline in weekly Shanghai copper stocks last week leaves the bull camp without a definitively positive buzz from China. We suspect the US jobs report from last Friday is a minimal support for copper into the new trading week, but a wave of global inflation readings later this week will be an extremely critical junction for all physical commodity markets.

ENERGY COMPLEX:

While we see global economic sentiment gradually improving from the US bank sector setback, strength in crude oil prices at the start of this week is likely attributable to comments from the Russian oil minister yesterday that they cut production last month by 700,000 barrels per day despite a “pledge” of a reduction of only 500,000 barrels per day. However, the energy markets doubt the magnitude of Russian production cut claims with physical flows seemingly remaining steady. A potential sign of a bullish bias in the marketplace is higher action in the face of a 6.8% rise in global floating crude oil in storage last week.

However, before the major big picture junction on Wednesday, the trade will be presented with OPEC and IEA monthly market outlooks which we think will favor the bull camp. While there are reports of outflows from global oil ETF holdings, speculators added to their net long in WTI crude oil last week. The gasoline market is significantly overbought from a technical perspective, with prices into the high Friday $0.60 above the December low and $0.50 above the March low. While the natural gas market continues to respect consolidation low support at $2.00, supply fundamentals remain bearish and a downside breakout could present without notice. However, reports of emerging market purchases and more importantly ongoing European attempts to refill to capacity should discourage sellers.

CLICK HERE FOR FULL REPORT

BEANS:

July soybeans closed lower for a third session in a row last Thursday as traders see the weather for the next two weeks as favorable to entice increased fieldwork in the Midwest. Slow export sales added to the bearish tone. Ideas that the big crop in Brazil is getting bigger added to the bearish tone. The premium of US soybeans over Brazil soybeans may have been a factor to keep export sales poor for the US. Talk that soybean meal is struggling to keep demand firm due to the large Brazil crop, increase production of rapeseed and sunflower meal plus poor crush margins in China are all seen as short-term negative forces.

CORN:

July corn closed moderately lower on the session Thursday and the selling pushed the market down to the lowest level since March 27. Better weather for fieldwork across the Midwest in the forecast for the next two weeks was seen as a bearish force. The weekly export sales report showed that for the week ending March 30, net corn sales came in at 1,246,607 tonnes for the current marketing year and 26,190 for the next marketing year for a total of 1,272,797. Cumulative sales have reached 79.2% of the USDA forecast for the 2022/2023 marketing year versus a 5 year average of 83.6%. The USDA attache in China sees 2023/24 corn imports at 18 million tonnes. This assumes less planted area for corn and assumes a big crop. For the USDA Supply/Demand report, traders see US ending stocks near 1.319 billion bushels, 1.242-1.392 range, as compared with 1.342 billion bushels in March.

WHEAT:

July wheat closed moderately lower on the session last Thursday as talk of better weather, mainly warmer weather, across much of the central part of the country helped to trigger ideas of better fieldwork ahead. While Kansas soil conditions are extremely dry, there is only very light and scattered rain chances for the next 5 days. The 6-10 day model shows above normal temperatures and slightly above normal precipitation. The 8-14 day forecast models show above normal temperatures and below normal precipitation. This is a drier and hotter forecast than what was expected last week. Egypt bought 600,000 tonnes of wheat from Russia at their tender. With Kansas City wheat at a record premium to Chicago wheat, Chicago wheat may find some underlying support. For the USDA supply/demand report, traders see US wheat ending stocks near 574 million bushels, 553-598 range, as compared with 568 million bushels for March. World ending stocks are expected near 267.06 million tonnes, 265.50-269 range, as compared with 267.2 million tonnes in March.

HOGS:

The hog market seems to have the supply fundamentals to expect a near-term low soon. June hogs closed lower on the session Thursday with an outside day after first trading to a contract low. Sluggish monthly export sales for February helped to pressure the market early, but this was partially offset by weekly export sales which came in much better than expected. The USDA pork cutout, released after the close Thursday, came in at $76.69, up $2.06 from Wednesday and up from $76.49 the previous week. This was the highest it had been since March 29. The CME Lean Hog Index as of April 4 was 73.91, down from 74.68 the previous session and 76.00 the previous week. The USDA estimated hog slaughter came in at 436,000 head Friday and 10,000 head for Saturday. This brought the total for last week to 2.370 million head, down from 2.489 million the previous week and 2.430 million a year ago.

CATTLE:

June cattle closed sharply higher on the session last Thursday and the market traded up to new contract highs. News of sharply higher trade in Nebraska late Wednesday helped to drive the market higher. Cash live cattle traded higher last week. As of Friday afternoon, the five-day, five-area weighted average price was 175.28, up from 168.85 the previous week. The USDA boxed beef cutout was up $1.14 at mid-session Thursday and closed $1.03 higher at $289.65. This was up from $279.20 the previous week and the highest it had been since March 6. The USDA estimated cattle slaughter came in at 105,000 head Friday and 10,000 head for Saturday. This brought the total for last week to 603,000 head, down from 651,000 the previous week and 665,000 a year ago. The estimated average dressed cattle weight last week was 823 pounds, unchanged from the previous week and down from 833 a year ago. The 5-year average weight for that week is 820.8 pounds. Estimated beef production last week was 495.0 million pounds, down 6.7% from a year ago.

COCOA:

While the cocoa market recovered from last Monday’s pullback, it was unable to extend its late March rally. With the market short-term overbought, cocoa is vulnerable to a near-term pullback. May cocoa continued to see coiling action below its late March high but was able to go into the holiday weekend on a positive note as they finished Thursday’s trading session with a moderate gain. For the holiday-shortened week, however, May cocoa finished with a loss of 14 points (down 0.5%) which broke a 3-week winning streak. Tight near-term supplies in West Africa continue to underpin cocoa prices, but that may only last until the region’s mid-crop harvest reaches full speed. Although there have been early forecasts that Ivory Coast’s mid-crop may be 10% below last year’s output, the surge in near-term supply should help exporters who have had difficulty acquiring cocoa bean supplies.

COFFEE:

Coffee prices have made a positive start to the second quarter as they have found some relief from near-term demand concerns. The upcoming Brazilian crop is showing signs of coming in higher than early forecasts, and that leaves coffee vulnerable to a near-term pullback. May coffee was able to extend its April recovery move as it reached a 5-week high before finishing Thursday’s trading session with a sizable gain. For the week, May coffee finished with a gain of 13.10 cents (up 7.7%) for a second positive weekly result over the past 3 weeks. A positive turnaround in global risk sentiment and the longer-term pullback in inflation provided coffee prices with support going into the holiday weekend, as that should help to improve restaurant and retail shop coffee consumption. The likelihood that ICE exchange coffee stocks will continue to decline during early April has also underpinned coffee prices this week, as they declined by 1,300 bags on Friday while there has been no grading of coffee during the first week of April.

COTTON:

May cotton closed sharply higher last Thursday near the upper end of a 10-day range. Outside market influences were mixed. This was despite a slightly higher dollar. Crude oil was slightly higher, and the S&P 500 was slightly lower. Traders attributed the move to short covering ahead of the holiday weekend. US cotton export sales for the week ending March 30 came in at 160,457 bales for the 2022/23 (current) marketing year and 15,942 for 2023/24 for a total of 176,399. This was down from 293,601 the previous week and below the four-week average of 259,957. Cumulative sales for 2022/23 have reached 11.621 million bales, down from 14.260 million a year ago and the lowest since 2015/16.

SUGAR:

Sugar prices have only had one negative daily result in the past nine sessions as they have gained 13.5% in value over that timeframe. With Brazil’s 2023/24 harvesting and crushing underway, sugar may have risen “too far, too fast” and could see a near-term pullback. May sugar extended its winning streak to 6 sessions in a row as the market reached its highest front-month price levels since October 2016 by finishing Thursday’s trading session with a sizable gain. For the week, May sugar finished with a gain of 136 ticks (up 6.1%) which was a third positive weekly result in a row. India’s Food Secretary said that their nation may not allow further sugar exports this season, which provided underlying support to the market as that will keep 2 to 3 million tonnes from reaching the global export marketplace. Reports that recent wet weather may delay the start of Brazil’s Center-South cane harvesting and crushing gave an additional boost to sugar prices.

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.

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.