Following a surprise downtick in year-over-year Tokyo CPI, the latest German IFO survey came in lower than expected. A private survey of US consumer sentiment came in lower than trade forecasts. Fed Chair Powell gave plenty for the market to digest as he said that the Fed was prepared to raise rates further if appropriate, the Fed will proceed carefully when deciding to hike again or hold steady, the Fed will decide their next moves based on data, and that inflation remains too high. Later in the day, the Fed’s Mester said that the Fed probably still has more work to do while the Fed’s Goolsbee said that he still feels confident about reaching the “golden path” of a soft landing. Treasuries saw choppy action before closing last Friday with modest losses.
The Dollar was unable to hold onto early support but came through choppy midsession action to finish Friday’s trading session with a moderate gain. While the latest US consumer sentiment reading was disappointing, Fed Chair Powell’s comment that inflation remains too high underpinned the Dollar late in the day. The Yen reached a 9-month low following a surprise downtick in Tokyo CPI. In addition, the Euro was pressure by a lower than expected German IFO survey and reached an 11-week low.
In addition to an entrenched downtrend channel on the charts, the euro is facing pressure from negative sentiment among German export companies. The Yen remains under a constant liquidation watch especially with comments from the Japanese bank suggesting their policy would remain unchanged over the next three quarters. While a bank holiday likely thinned early week trading in the Pound, we see the general trend in the Pound pointing down. The Canadian dollar enters the new trading week significantly oversold from last Friday’s major washout.
Global markets had a turbulent finish to the week as they saw several shifts in tone during Friday’s trading session. NVIDIA’s inability to sustain a rally after blowout earnings and guidance late Wednesday continues to cast a shadow over technology stocks. There were indications that the United Auto Workers were voting to authorize a strike of major US vehicle manufacturers next month, which caused a mild flare-up of risk anxiety in many markets sectors. There was volatile two-sided action as equities digested comments from Fed Chair Powell, but they were able to regain strength later in the day as the major US equity indices finished the day with moderate gains.
As in the S&P, Dow futures have bounced from the significant washout last week in a fashion that should create fresh short sale opportunities early this week. Fortunately for the bull camp the NASDAQ index has residual investment capacity fostered by long term AI business potentials.
GOLD, SILVER & PLATINUM:
While the gold trade early this week showed positive action, optimism is seemingly based on the slim idea that gold “held up” well against last week’s hawkish Fed guidance. However, hedge fund managers reduced their net long last week and gold ETF holdings last week reduced their gold holdings by a very significant 257,994 ounces. Year to date gold ETF holdings are down 4.2%! Similarly, Silver ETF holdings last week declined by 6.3 million ounces with holdings year-to-date down 3.6%. With the upside breakout in the US dollar at the end of last week stalling the recovery in gold off last week’s low, resistance has thickened around a quasi-triple top.
Like the gold market, silver is technically overbought and vulnerable to corrective action which could be accentuated by fundamental selling action. While the October platinum contract managed an upside breakout at the end of last week due to big picture broad-based global equity market optimism, we see the market vulnerable to a reversal today. While the most recent positioning report did not register a fresh record spec and fund short position in palladium the market remains net short just under the old record level.
Unfortunately for the copper bulls, the latest Chinese attempt to support their economy looks to have an indirect and muted impact on copper, with a reduction of trading fees on equities helping economic sentiment, but that move is unlikely to impact copper demand in the near-term. However, the reduced stamp tax will help the property markets as transaction costs will be reduced potentially aiding buyers. Since we were highly suspicious of last week’s rally, we are extra negative toward the copper market at prices significantly higher than last week’s lows. While there has been a fresh wave of interest rate fears from the Fed Symposium, the copper market is likely to remain fixated on the Chinese situation.
At least in the early action this week, the October crude oil contract has not extended last week’s action with a fresh higher high for the move. However, the petroleum complex continues to garner support from a refinery fire in New York as that is pumping up product prices. Certainly, a slowdown in feedstock purchases at the beleaguered refineries are expected, but the overall national US refinery operating rate is strong at nearly 95%. It should be noted that in this week’s positioning report bullish positioning was reduced by the spec and hedge fund camps in WTI and Brent oil. Other supportive headlines from Bloomberg are the lowest Russian refinery activity readings since July and a 23% decline in global crude oil in floating storage.
While the strength and track of Tropical Storm Idalia is not currently ultra-threatening, that storm combined with recent increased tropical wave action should keep some sellers on the sidelines.
With a potential storm threat to the most concentrated US refinery area of the country (the Gulf states) from tropical Idalia, and product prices near new highs for the move bullish resiliency could be rekindled easily.
As if the gasoline rally were not impressive enough, the explosion in diesel prices last Friday clearly highlights the potential for further near-term gains. While significant cooling demand last week and a return of heat on Tuesday did not prompt significant buying last Friday, the bull camp appears to be stimulated by the potential for lost production from a hurricane in the Gulf of Mexico. The storm is expected to stay east of natural gas export terminals in Louisiana and Mississippi and is likely to fall to a category one hurricane after making landfall and impacting export terminals in Georgia and South Carolina.
The funds continued to buy last Friday extending a long streak of daily purchases and that combined with the market’s capacity to embrace deteriorating conditions in the face of rain and milder temperatures highlight bullish resiliency. Also supporting soybean prices this morning is last week’s 120,000 tonnes of soybeans sold to China and a hot and dry forecast is being embraced over a temporary rain and mild temperature event passing through the belt. Final Pro Farmer crop tour results came out at 49.7 bushels per acre which was below expectations. The 2% margin of error gives a yield range of 50.7 – 48.7 bushels per acre. Prices must add some weather premium to start the week, just in case yields do sink toward the bottom end of the crop tour yield range which would dramatically tighten ending stocks.
Another very dry week for the Midwest is supporting prices to start the week. Monday’s crop condition report is expected to show a 2-3% decline after last week’s heat and dryness. Pro Farmer’s final results were below expectations in both corn and beans. Corn yield was estimated at 172 bushels per acre, 3.1 bushels below the current USDA number. Using the 2% margin of error, the yield range was 173.7-170.3. The question now that the tour is over is how much further damage is left to be done as the growing season finishes very dry. Updated forecasts bring the heat dome back to the center and Western corn belt by late this week and into the weekend.
Spillover buying from the higher start in corn and beans for the week has not materialized in wheat. Prices are suffering from the short leg of long bean/short wheat and long corn/short wheat spreading. Pressure is also coming from reports Putin and Turkish President Erdogan will be meeting as early as next week to discuss the grain corridor deal. Additionally, the second ship to use Ukraine’s grain corridor to leave the Odessa port has reached Romanian waters without incident.
A strong US export sales report on Thursday, showing net pork sales 30,000 tonnes for the second straight week helps counter concerns about demand, but sharply lower pork prices have undermined that support. The USDA pork cutout, released after the close Friday, came in at $93.10, down $10.22 from Thursday and down from $105.71 the previous week. This was the lowest it had been since June 20. The decline was led by bellies, which were down $57.14 to $123.22. The USDA estimated hog slaughter came in at 468,000 head Friday and 156,000 head for Saturday. This brought the total for last week to 2.500 million head, up from 2.414 million the previous week and 2.412 million a year ago.
October cattle traded to their highest level since August 11 on Friday and closed moderately higher on the day, but they are still in a downtrend off the contract (and all-time highs) from July. Cash live cattle prices were lower last week, with the five-day, five area weighted average price at $182.28, down from $184.81 the previous week. Prices were lower in the north but steady in the south. The USDA estimated cattle slaughter came in at 122,000 head Friday and 16,000 head for Saturday. This brought the total for last week to 626,000 head, up from 616,000 the previous week but down from 678,000 a year ago. The estimated average dressed cattle weight last week was 817 pounds, up from 815 the previous week and down from 823 a year ago.
Since reaching a two-year low last September, the cocoa market has been in an uptrend, with prices rising 1,423 points (up 64%) to reach their highest levels since March 2011. The cocoa market’s setback this month was fueled in part by demand concerns, but a bullish supply outlook may help prices remain well supported before they regain and sustain upside momentum. December cocoa followed through on Thursday’s outside-day higher close as they built on early support and finished Friday’s trading session with a sizable gain. For the week, December cocoa finished with a gain of 17 points (up 0.5%) and a second positive weekly result in a row.
Coffee prices lost 41.80 cents in value (down 22%) from early June to mid-August as they have been pressured by larger Brazilian production and near-term demand concerns. The market may find relief from both of those factors over the next few weeks, and that can help coffee maintain a recovery move going into early September. December coffee was unable to shake off early pressure as it went on to post a moderate loss for Friday’s trading session. For the week, however, December coffee finished with a gain of 3.15 cents (up 2.1%) which broke a 2-week losing streak.
After last week’s Drought Monitor showed worsening drought conditions in Texas and other cotton growing states, the trade will be watching Monday afternoon’s weekly Crop Progress report to see if conditions worsened last week. Last week’s report showed only 33% of the US cotton crop was rated good/excellent versus a 10-year average of 50% and a record low of 31% (set last year). Also, 46% of the crop was rated poor/very poor versus 20% on average. This was a new all-time high. The Texas crop was even worse. Most other states were close to average, but Texas dominates the story because it represents 55% of the total planted area.
Sugar’s turnaround late last week took prices from a 7-week low to a 5-week high in less than 3 days. If the market shifts its supply focus from Brazil to south Asia, sugar should be able to maintain upside momentum early this week. October sugar rallied to a 1-week high before finishing Friday’s trading session with a sizable gain. For the week, October sugar finished with a gain of 1.07 cents (up 4.5%) and a positive weekly reversal from Wednesday’s 7-week low.
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