Wkly Futures Market Summary July 17.23

BONDS:

The treasury markets added to last week’s impressive rally with a higher high in treasuries last Friday before prices fell back in what we think was a profit-taking wave. However, treasury bonds rallied over 4 points last week in a move that was largely justified by several reports highlighting progress on the inflation battle. It should also be noted that demand for supply from this week’s treasury note auction was extremely strong suggesting bonds are once again in favor. Despite an initial lower low, treasury bond prices look to be supported by evidence of inflows to US and global bond funds, with global bond funds seeing a 3rd straight week of inflows.

CURRENCIES:

With the dollar index last Friday falling into new low ground for the 6th day in a row and extending the slide from the July high to nearly 400 points, the slight bounce off the low is likely position squaring ahead of the weekend. However, the US produced a series of inflation readings last week showing progress on the inflation front and that likely has lowered the prospects of 2 additional rate hikes before the end of the year which in turn has caused money to leave the dollar. Despite strong probabilities for a US interest rate hike on July 26th, the dollar remains off balance because of market views that US inflation is coming under control and the US rate hike cycle is likely to come to an end.

While Italian CPI for June was zero and replicated the prior month’s zero reading, the euro was able to carve out a higher high early this week. With the Yen tracking sideways over the prior 3 trading sessions and sitting within that range early today the currency is facing technical and fundamental boundaries. Like other nondollar currencies, the Pound temporarily lost upside momentum and should be considered temporarily vulnerable to chart balancing selling.

STOCKS:

While the equity markets extended last week’s rally in Friday’s early trade, the market clearly lost some momentum, especially with the market unable to continue to extend following much better-than-expected large bank profits. Clearly, the banks benefited from increased interest income, but Citigroup failed to match other big bank earnings because of negative trading and increased expenses. It is also likely that the low to high rally this week of 150 points left the S&P short-term bought out. Global equity markets at the start of this week were mostly lower with the lone exception the Russian market. In addition to bearish spillover from international equity markets, the US trade was undermined by a lack of investor optimism and lingering expectations for a US Fed rate hike next week. The markets might also be undermined following comments from Elon Musk indicating Twitter still has negative cash flow and lost 50% of its ad revenues. It should be noted earnings from Tesla, Bank of America, Morgan Stanley, Goldman Sachs, and Netflix are due out this week.

GOLD, SILVER & PLATINUM:

While the initial trade is not definitive, we give the edge to the bear camp as dollar declines are insignificant, treasury prices are up minimally, and many commodities are tracking higher. Fortunately for the bull camp last Friday gold ETF holdings increased by 11,620 ounces breaking a 19-day pattern of outflows. Nonetheless, gold ETF holdings last week still fell by 131,350 ounces and silver ETF holdings declined by 5.4 million ounces. While the Chinese data on its face was not particularly discouraging, the growth rate in China was significantly softer than in the prior quarter with Chinese retail sales posted a gain of 3.1% versus the 12.7% gain in May. In retrospect, last week’s rally in gold was undersized considering the magnitude of dollar weakness and the significant moderation of US interest rates. While the platinum market is starting the week off under pressure, the bull camp should be emboldened by the prospect of lower mined production and from a net inflow to platinum ETF holdings last week of 20,203 ounces which puts the year-to-date gain at 7.2%.

COPPER:

With the rally last week in copper of $0.11 and disappointing Chinese growth readings early this week, an aggressive correction is not surprising and is likely to extend with a test of $3.80. In fact, the trade continues to be disappointed with the lack of broader-based Chinese stimulus spending on infrastructure. Furthermore, after seeing LME copper warehouse stocks venture near 17 1/2-year lows they have had two days in a row of inflows with total gains of 4,450 tonnes while weekly Shanghai copper stocks last week showed an inflow of 8,052 tonnes. However, a bullish supply-side development from the weekend came from Zambia where their budgeting estimate predicted 2023 copper production to decline from 763,550 tonnes last year to only 682,431 tonnes this year.

ENERGY COMPLEX:

Like global equities and currency markets, the petroleum markets have reversed course in what is likely a technical balancing of very significant late June and early July rally. In fact, the September crude oil contract last Friday stalled at the highest price since April 25th and then finished almost $2 below its early high, therefore, the crude oil market has the appearance of an intermediate top. In retrospect, the petroleum markets have priced in an upbeat energy demand outlook which may overstate current consumption patterns especially given soft Chinese economic data released at the start of this week! The bear tilt is further evidenced by the markets lack of positive reaction to news that crude oil in floating storage declined by 21% over the last week, Saudi Arabian crude exports in May declined by 388,000 barrels per day and following news that Chinese daily oil throughput last month increased.

CLICK HERE FOR FULL REPORT

BEANS:

In addition to favorable technical action at the start of this week, the trade expects June soybean crush 4.1% higher versus June of last year, there are signs of increased Chinese buying interest in Brazil (and eventually even US beans) and the markets see weekend rainfall totals leaving some areas stressed. Furthermore, the trade expects China to buy more beans from Brazil in the 4th quarter as Chinese buyers fear significantly higher world soybean prices if US crop losses rise further. However, the USDA predicted record soybean yields last week which we think is unlikely. Certainly, the potential reduction in yield is a major issue given the significant reduction in the US planted area.

CORN:

While one can never predict actions of the Russian president, as of this writing Russia has halted the Black Sea shipping deal and has indicated the bridge attack was not a force in their decision. The Russians probably decided to increase pressure on the west following shipments of US cluster bombs to Ukraine and the bridge bombing was simply icing on the cake. The funds have turned bullish toward corn with estimates of 20,500 contracts bought last Thursday and Friday. We continue to be surprised with the rally in corn as the conveyor belt of storms continued over the weekend with some storms projected ahead.

WHEAT:

Russia’s termination of the grain corridor favors the bull camp at the start of this week’s trading. Overland routes and the Danube River will now be Ukraine’s only export outlets. But the uncertainty recently about the continuation of the deal has given Ukraine a head start in finding alternate routes, which may mean the focus shifts back to weather and exports fairly quickly. Russia did say they would return to the deal if conditions are met for Russian fertilizer exports so the door is cracked open. Also on the bulls side early this week, China wheat output was cut 0.9% due to the wet harvest weather and Bangladesh is tendering for 50,000 tonnes of wheat.

HOGS:

Strong pork prices support lean hog values, but higher hog weights and a 3% increase in pork production last week over year ago levels could limit traders’ bullish ideas. The USDA pork cutout released after the close Friday came in at $114.82, up $4.53 from Thursday and up from $106.53 the previous week. This was the highest the cutout had been since August 22, 2022. The CME Lean Hog Index as of July 12 was 100.29, up from 99.36 the previous session and 96.07 a week prior. Extreme heat in the southern half of the nation could raise concerns about animal health and weight gain. However, Iowa/Minnesota hogs saw an increase in weights last week, which is unusual for this time of year. That was attributable to moderating temperatures.

CATTLE:

Tight supplies and low weights are sending August live cattle back to contract highs despite the drift lower in beef prices. Extreme heat is raising concerns about weight gain in the southern Plains, particularly Texas. The USDA estimated cattle slaughter came in at 121,000 head Friday and 8,000 head for Saturday. This brought the total for last week to 633,000 head, up from 539,000 the previous week but down from 673,000 a year ago. The estimated average dressed cattle weight last week was 810 pounds, unchanged from the previous week and down from 812 a year ago. The 5-year average weight for that week is 815 pounds. Weights typically bottom out this time of year, but this year the recovery has been slower than normal. Estimated beef production last week was 511.6 million pounds, down from 545.4 million a year ago. The lag in beef production from a year ago is bullish.

COCOA:

While the cocoa market received disappointing demand news from Europe on Thursday, its supply outlook has become even more bullish due to events late last week. As a result, cocoa prices may reach a new 7 1/2 year high this week. September cocoa shook off mild early pressure and recovered all of Thursday’s heavy selloff as it went on to post a sizable gain for Friday’s trading session. For the week, September cocoa finished with a gain of 42 points (up 1.3%) and a weekly reversal from last Thursday’s 2-week low.

COFFEE:

While the coffee market has been unable to climb above its late June/early July consolidation zone, it has climbed well above last Tuesday’s 5 1/2 month low and just missed out on a positive weekly reversal. If global risk sentiment can regain a positive tone, coffee prices can extend their recovery move early this week. September coffee was able to build on early strength as it went on to post a sizable gain for Friday’s trading session. For the week, September coffee finished with a minimal loss of 0.10 cent which was a fourth negative weekly result over the past 5 weeks.

COTTON:

A stronger US cotton crop this year and a bearish supply/demand setup appear to have the capacity to limit upside potential for December cotton in the face of potentially threatening weather. Last week’s USDA supply/demand report put the US 2023/24 stocks/use ratio at 23.8%, up from 21.6% in the June report, 21.7% last year and the highest since 2019/20. The world ratio came in at 81.2%, up from 79.3% in June but down from 85.6% a year ago. Last week’s Crop Conditions report showed the US crop was much improved crop over last year and was close to the 10-year average. Even Texas was nearing its 10-year average, as drought conditions have improved significantly. However, the region has endured some hot weather over the past week, which could affect conditions in this afternoon’s conditions report.

SUGAR:

After failing to take out its late April high in two attempts in May and June, October Sugar fell 4.31 cents (16%) in eight sessions. The market has since regained more than 2.50 cents as it found support from an $8 rally in crude oil prices. Despite the recovery, the global supply outlook for sugar remains bearish. Sugar prices extended their July rebound to a 2 1/2 week high as they went on to finish Friday with a moderate gain. For the week, October sugar finished with a gain of 0.79 cent (up 3.4%) and a second positive weekly result in a row.

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.