Wkly Futures Market Summary Feb 26.24

BONDS:

As we indicated in this week’s market letter, we see the treasury markets entering a major pivot or junction in the coming two weeks of trade. Clearly the sharp slide in treasury prices over the last two months was anticipating higher US interest rates and to recover growing confidence in the economy will need to be tripped up by soft data next week. However, the bear camp will not be easily deterred with next week presenting another round of massive US treasury refunding supply. With global equities faltering early this week, a veritable avalanche of US scheduled data directly ahead and another wave of expanded US treasury auctions (starting Monday with two year and five-year notes) we suspect shorts are banking profits and moving to the sidelines.

CURRENCIES:

While the currency trade has cast dispersions against the dollar rally since the late December low, evidence of sticky US inflation and resilient economic activity should firm up fundamental support for the dollar. In fact, if this week’s very active slate of US economic data provides more growth evidence the dollar is likely to breakout to the highest levels since November. Keep in mind, Germany posted negative GDP this week which clearly highlights a US macroeconomic differential edge! Fortunately for the bull camp in the euro, German export sentiment has improved this month thereby countervailing a portion of the euro bearish contraction in German GDP readings last week. However, without Euro specific data released early this week, the euro will be in a knee-jerk reaction mode to the dollar following US data on Monday.

STOCKS:

The equity markets continue to surge in a fashion which rekindles ideas of irrational exuberance. However, investors remain fixated on the potential for stratospheric earnings from the global implementation of AI technology. On the other hand, seeing Nvidia shares gain $277 billion in value in a single trading session fosters concern for a short-term corrective setback. However, the current euphoria resembles the euphoria from the beginning of the Internet phenomenon and significant money is likely to flow to stocks despite high valuations.

Therefore, without a good auction result from the short end on Monday, treasury prices could resume their track lower thereby creating a corrective force for equities. In a very amazing development, the net spec and fund short in S&P futures remains large, indicating stop loss buying could continue to feed prices higher. While the Dow has shown very little corrective action this morning (despite weakness in global shares), early signs of lower treasury yields, and confidence building news from Berkshire Hathaway, the bias is still up unless Fed news shifts from neutral to slightly hawkish. While some traders will point out the new high and lower close reversal last Friday in the NASDAQ and continuing concerns of a significantly overvalued Nvidia’s shares, the NASDAQ should continue to be seen as the engine of the bull camp.

GOLD, SILVER & PLATINUM:

The action in gold early this week should be concerning to the bull camp as the dollar remains vulnerable on its charts with five straight days of lower highs. While not a major supportive development treasury prices have added to last week’s late rebound during early trading this week. With a lack of global economic data, generally lower equities and a veritable avalanche of US scheduled data ahead this week some gold longs might be taking profits and moving to the sidelines temporarily. However, with a wide trading range rejection of a dip to $2,025 Friday, April gold increases the credibility of $2,025 as consolidation low support zone. While some traders Friday bought gold off speculation of a slide in the dollar, we suspect there were pre-weekend flight to quality buyers betting on a Middle East event.. The gold trade this week will face a US treasury auction wave, US GDP, and Chinese manufacturing and nonmanufacturing PMI readings for February on Thursday. However, expectations for rate cuts around the world have declined with confidence toward US economy improving and the dollar likely to grind lower.

COPPER:

The copper market lost momentum late last week after regaining the $3.90 level on a rally inspired by a significant improvement in sentiment toward the Chinese economy. While some factors behind the improved outlook for China are anecdotal (surging traffic numbers and surging air travel) should help to countervail the very negative 109% explosion in Shanghai copper warehouse stocks at the end of last week. Unfortunately for the bull camp, we suspect the five-cent rally after the positioning report was measured, likely liquidated nearly all the spec and fund shorts which could now set the stage for a temporary correction.

ENERGY COMPLEX:

With a negative technical trade to end last week’s action, followed up by negative technical action early this week, the bull camp is lucky to have had improving energy demand expectations surface last week, especially with classic supply fundamentals in the US pointing to a rebuilding of crude oil inventories. However, the liquidation bias should be mitigated by a 7.5% decline in global crude oil in floating storage with inventories this week reaching the lowest since October. Furthermore, this week’s floating storage readings showed Asian Pacific stocks down 3.6% and US Gulf Coast down 84%.

While the gasoline market at times last week was the most vulnerable petroleum market, the trade has respected the $2.50 level in each of the last five sessions lending that level as solid support or value.

Gas (RBOB) positioning in the Commitments of Traders for the week ending February 20th showed Managed Money traders are net long 61,425 contracts after net selling 715 contracts. Natural Gas positioning in the Commitments of Traders for the week ending February 20th showed Managed Money traders were net short 158,673 contracts after increasing their already short position by 30,257 contracts.

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BEANS:

March 1st notice day liquidation is ongoing and likely to keep pressure on prices for the next couple of days. A bleak technical outlook and bearish fundamentals will be hard to shake, although we may see some kind of relief bounce after March liquidation runs its course midweek. AgRural estimates Brazil harvest at 40% done with Mato Grosso at 76% done compared to 72% average. They also lowered their Brazilian bean crop estimate to 147.7 million tonnes compared to 150.1 million in their previous forecast.

As we move into March, Brazil bean exports typically ramp up as harvest supplies are plentiful and US exports suffer and that is likely to continue this year. China remains focused on reducing foreign crop import needs via GMO planting and their sow herd continues to shrink, down 6.9% from last year, which reduces their soymeal demand.

CORN:

The freefall in corn continues to start the week and pressure from March liquidation and the extremely weak technical picture will be the feature for at least the 1st half of this week. Typically, prices see a rebound after 1st notice day pressure ends and this week will probably be no different. As expected, fund net shorts set an all-time record last week at 341,000 contracts, up 27,000 from the previous week and that was as of Tuesday of last week, so shorts are even larger now. Commercials, on the other hand, are net long a record 58,000 contracts. AgRural says center-south planting in Brazil is 73% complete and conditions are seen generally favorable. Today is the 12th day out of the last 13 sessions that March futures have scored a new contract low. US corn is competitive off the Pacific Northwest Coast, and we expect demand to bounce back this week from the poor export sales number last week. At the current prices, US farmers are likely to lock the bin door and sit on their stored corn waiting for a spring/early summer rally.

WHEAT:

A disappointing start to the week for the bull camp as price action continues to be very poor with only limited follow-through from the reversal higher last week. The fundamental outlook is weakening and pressure may continue for the next few days as end of month selling and 1st notice day liquidation for March contracts is ongoing. With US winter wheat area in drought only 12% and good/excellent conditions in HRW well above last year, KC wheat may be the weak link that holds Chicago prices down.

Russian and World prices are far below the US and, although the next major weather item may be talk of a potential frost, a large HRW crop would add additional bearish pressure that could take prices lower than expected.

HOGS:

April hogs settled close to unchanged Friday after spending the session in the upper half of Thursday’s breakout range. The market could see further gains this week if the slaughter pace stays strong. The USDA estimated hog slaughter came in at 482,000 head Friday and 136,000 head Saturday. This brought the total for last week to 2.578 million head, up from 2.559 million the previous week and 2.361 million a year ago. Estimated US pork production last week was 558.9 million pounds, up from 556.0 million the previous week and 510.2 million a year ago. Friday’s export sales report had US pork sales for the week ending February 15 at 28,902 tonnes, down from 33,691 on February 8 and 39,220 on February 1.

CATTLE:

Friday’s USDA Cattle on Feed Report showed placements for the month of January at 92.6% of last year versus an average trade expectation of 88% and a range of expectations from 81.6% to 94.0%. Marketings for January came in at 99.9% of last year versus 99.8% expected (range 98.6%-100.3%). February 1 on feed supply was 100.4% of last year versus 100.1% expected (range of 99.4% to 101.0%). The report was bearish, particularly for the deferred months, as January placements came in well above expectations (though still down from last year).

The on-feed number was only slightly higher than expected, which is less bearish for the closer-in contracts. However, the disappointment with the placements number will likely dominate market action in the early going today.

COCOA:

Cocoa prices have increased 2,094 points over the first 8 weeks of 2024, which compares to a 1,653-point increase over the 12 months of 2023. Last week’s price action saw three daily price ranges of 300 points or larger followed by last Friday’s mammoth 631-point trading range. Although extreme intra-day volatility often precedes a longer-term shift in trend, cocoa still has a very bullish supply outlook that can fuel additional price gains during the first quarter. May cocoa shook off initial pressure and reached a third new record high in as many days before finishing Friday’s wide-sweeping trading session with a massive gain.

COFFEE:

Coffee prices turned sharply to the downside late last week as they were pressured by bearish supply/demand developments. With major producers looking at increased output, it may be the demand side of the market that has a better chance of putting some brakes on coffee’s selloff. May coffee extended their downside breakout to a 1-month low with a second sizable loss in a row during Friday’s trading session. For the week, May coffee finished with a loss of 6.40 cents (down 3.4%) which was a third negative weekly result over the past four weeks. A weaker currency gives Brazil’s coffee farmers more incentive to market their coffee supply to foreign customers, so the Brazilian currency pullback to a 2-week low on Friday pressured the coffee market.

COTTON:

May cotton is consolidating its rally from the November low to the contract high from earlier this month. US exports have slowed from the surprisingly strong pace earlier this year, but supplies are reportedly tight after the poor crop last season. Friday’s export sales report showed US cotton sales for the week ending February 15 at 130,468 bales for the 2023/24 (current) marketing year and 58,108 for 2024/25 for a total of 188,576. This was up from 168,209 the previous week but was the second lowest since December 28. This was the largest new-crop sale since October. Cumulative sales for 2023/24 have reached 90% of the USDA forecast for the marketing year versus a five-year average of 89% for this point in the season. The largest buyer this week was Bangladesh at 50,579 bales, followed by Turkey at 49,465 and Mexico at 25,108. China bought only 6,905 bales. This is the first time in weeks they were not the biggest buyer, probably due to the Lunar New Year holidays.

SUGAR:

Sugar prices avoided a new low for their February pullback on Friday, but they finished last week with their first close below the 50-day moving average since January 22nd. Even with India continuing to ban their exports, sugar prices have been unable to benefit and may have trouble finding their footing this week. May sugar was unable to shake off early pressure as it finished Friday’s trading session with a sizable loss. For the week, May sugar finished with a loss of 0.77 cent (down 3.4%) and a second negative weekly result in a row. While Brazil’s ethanol demand has been improving, the Brazilian currency fell to a 2-week low on Friday.

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