Wkly Futures Market Summary July 31.23

BONDS:

Not surprisingly, the treasury market rebounded last Friday off a combination of a short-term oversold condition and partly because US data showed modest weakness in US personal income and Michigan consumer sentiment index readings for July. However, the latest Fed watch tool pegs the odds of a pause by the Fed in September at 80% and it will take a series of favorable economic readings and a few concerning inflation readings to shift the pendulum toward a rate hike. While treasury bonds managed to bounce off last week’s lows the recovery appears to be technical balancing instead of a view that prices were cheap from a fundamental perspective.

CURRENCIES:

While the dollar should remain in general control, last Friday’s US personal income readings and the Michigan consumer sentiment readings prompted a measure of long profit-taking. However, declining US recession prospects and a 20% chance of a US rate hike in September should ultimately leave the dollar in an uptrend. The dollar started this week by tracking in positive territory, but the chart action is not definitively positive unless Friday’s high at 101.82 is taken out following Monday’s US scheduled data. At least to start, the Dollar retains a fundamental edge from recent strength in economic data and the prospect of even higher rates.

Over the weekend European Central Bank dialogue cast concern on wage price inflation and stubborn core inflation which has helped cushion the euro against what appears to be a slight edge by the dollar.

Despite Japanese rates breaking out to 9-year highs and talk of less accommodative central bank policies, the Yen remains out-of-favor. While the charts in the Pound are not particularly bullish, they do favor the bull camp with a long-term uptrend channel support line. The Pound should draft support from a jump in June GBP mortgage approvals and by a massive jump in net lending to individuals. With a lower low in the early trade this week, the trend for the Canadian dollar is pointing down.

STOCKS:

The equity market continued to follow-through on the upside last Friday with a fear of missing out, combining with improved confidence the US will avoid a recession. The market was also benefited last week by favorable Facebook ad revenues and from a stronger-than-expected US GDP report. Yet another supportive development for the bull camp was indications from Intel of a boost in shipment demand from an end to the PCE market slump.

GOLD, SILVER & PLATINUM:

Despite favorable internal demand news, the gold market starts this week off under pressure from strength in the dollar and signs of higher global interest rates. While comments from a Chinese state planner indicating they will push for an expansion of household consumption sounded like the 6th stimulus announcement, that news combined with a slight improvement in Japanese manufacturing PMI readings for July should have been more supportive of gold, silver, and many physical commodities. Unfortunately for the bull camp gold ETF holdings last week fell by 329,000 ounces with a decline on Friday of 50,383 ounces putting year to date holdings down 2.3%. Similarly, silver ETFs reduced their holdings by 810,870 ounces.

With the downside failure last week extending a 2 week decline of $72, the platinum market has not benefited from the improvement in global economic sentiment. Therefore, platinum probably relies heavily on a noticeable improvement in the Chinese auto sector recovery as several stories of lost supply from power issues in mining facilities in South Africa have not been a concern to the trade. Unfortunately, platinum and palladium prices have slid despite the latest Swiss clearinghouse export tally showing stronger global demand.

COPPER:

With a Chinese state planner indicating they were working to expand household consumption and given a favorable Chinese NBS manufacturing PMI reading for July, the upside breakout in copper early this week was justified. While the Chinese have offered at least 6 separate stimulus plans to stoke their economy, it was not until last Friday that some sign of psychological benefits were being seen with very aggressive gains in Shanghai stock markets. Perhaps the copper market was discouraged that the Chinese central bank did not cut interest rates. At the end of last week, copper forged 3 significant range trades with aggressive swings in both directions and with 2 of the 3 swings showing positive traction.

ENERGY COMPLEX:

It is possible that the funds have turned bullish given long-term technical signals have turned bullish and the outlook for the global economy has improved enough to prompt fundamental funds to get long crude oil. In fact, even the hedge funds have boosted their bullish positioning throughout the petroleum complex despite less concern of energy price inspired inflation. However, the bull camp should be inspired by a 2.2% decline in weekly crude oil in global floating storage, talk of the strongest monthly price gain since January 2022 and from an extension of global risk on in equity markets. To a lesser degree crude oil is supported by reduced recession fears but that support is countervailed by ongoing outflows from oil ETF instruments.

With the natural gas market turning lower last week and remaining soft through supportive smaller than expected weekly injection readings, the trade is not easily concerned about excess heat eating into a cushion of supply. While the Russian national gas company showed a minimal downtick in the amount of gas sent through Ukraine to Europe on Sunday, flows remain strong with no sign of letup.

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BEANS:

In addition to a milder US weather forecast soybeans were under pressure early this week from a continuation of losses in palm oil futures from expectations of higher production in Indonesia. On the other hand, press coverage continues to tout the threat of lost production from El Nino which could mean the palm oil discount to soybean oil will narrow. However, US weather in the Midwest showed a front slipped over the region over the weekend and brought lower temperatures and widespread rain along with severe weather. Certainly, the showers have stalled slightly off to the southern Midwest area, but the trade currently expects only one or 2 days of heat leaving the weather conducive to crop development. Apparently, a downward revision in the EU oilseed crop was seen as a less significant issue with this year’s rapeseed crop expected to be only 0.7% below the 19.4 million tonnes produced last year.

CORN:

There was price pressure on the corn market to start the week on improved weather as weather bulls throw in the towel. Forecasts for the hot temperatures to stay south of the main corn belt for the next 2 weeks will be ideal to finish off pollination. Heavy rains fell across Nebraska at the start of this week and with the ridge drifting further south, more storms are expected over the next 5 days in Nebraska, southern Iowa, Missouri, and southern Illinois and Indiana with mostly seasonal temperatures. This improvement in the forecast is the dominant market force early this week, overriding the Russian attack on a grain facility at the port of Kherson over the weekend.

WHEAT:

Spillover pressure from corn and beans and improved Midwest weather is offsetting any bullish Black Sea uncertainty for the wheat market. There were no new port attacks on Sunday and Monday after Russia struck grain infrastructure in the port of Kherson Saturday; however, the Black Sea ports are expected to remain unusable by Ukraine until after the war, mitigating any bullish market reaction. Instead, a slight increase in Russian wheat crop estimates by SovEcon and reports Ukraine total exports for the last 12 months were up 34% year-over-year, is giving the bear camp reasons to press the short side.

HOGS:

October hogs look poised to take a stab at the July 20-21 highs and resume their gradual uptrend. There may not be a compelling fundamental argument for a sustained rally except for a seasonal tendency for prices to increase this time of year and the fact that hog weights are lighter than normal. The USDA estimated hog slaughter came in at 460,000 head Friday and 82,000 head for Saturday. This brought the total for last week to 2.392 million head, up from 2.316 million the previous week and 2.292 million a year ago. Estimated US pork production last week was 501.0 million pounds, up from 485.8 million the previous week and 483.8 million a year ago. The estimated average dressed hog weight last week was 209 pounds down from 210 pounds the previous week, 211 a year ago and a five-year average of 209.6.

CATTLE:

Beef prices keep falling and packer margins are falling deeper in the red, but cattle supplies remain tight. The USDA estimated cattle slaughter came in at 110,000 head Friday and 10,000 head for Saturday. This brought the total for last week to 619,000 head, down from 624,000 the previous week and 666,000 a year ago. The estimated average dressed cattle weight last week was 813 pounds, up from 812 the previous week and unchanged from a year ago. The 5-year average weight for that week is 818 pounds. Estimated beef production last week was 502.5 million pounds, down from 540.6 million a year ago.

COCOA:

While the near-term outlook remains uncertain, the cocoa market has received positive demand news that has partially offset disappointing second quarter grindings results. With a 172-point monthly gain going into the final trading day of July (up 5.1% in value), the cocoa market is vulnerable to month-end profit-taking. September cocoa held within a relatively tight price range as it could not shake off early pressure and finished Friday’s trading session with a mild loss. An inability to retest Thursday’s 12-year high may have fueled additional long liquidation that pressured cocoa prices late in the day.

COFFEE:

Coffee prices were unable to sustain an upside breakout of their recent consolidation zone and may be heading for a retest of their mid-July lows. With signs of improving out of home demand providing support, coffee prices may be able to regain upside momentum this week. September coffee fell to a 1-week low before finishing Friday’s trading session with a sizable loss. For the week, September coffee finished with a loss of 3.95 cents (down 2.4%) and a negative weekly reversal from last Monday’s 4 1/2 week high.

COTTON:

The cotton market clearly got overdone on the extreme heat theme last week and sold off sharply, but the Texas crop is not out of the woods yet. We expect a reduction in their crop conditions in Monday afternoon’s weekly USDA Crop Progress report. Last week’s report showed 46% of the US crop was rated good/excellent (G/E) versus 45% the previous week, 34% a year ago, and a 10-year average of 50%. In Texas, 24% was rated G/E versus 26% the previous week, 18% a year ago, and a 10-year average of 38%. West Texas is not expected to see any rain in the next 5 days, and the 1-7-day forecast has temperatures 4-8 degrees above normal and precipitation at 5% to 75% of normal.

SUGAR:

Sugar prices have turned back to the downside as bearish supply news has more than offset carryover support from key outside markets. Until there is a bullish shift in its supply outlook, the sugar market could lose further ground this week. October sugar started out under pressure and fell to a 1-week low before finishing Friday’s trading session with a sizable loss. For the week, October sugar finished with a loss of 1.09 cent (down 4.4%) which broke a 3-week winning streak and was a negative weekly reversal from last Monday’s 5-week high.

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