Wkly Futures Market Summary June 5.23

BONDS:

In last Friday’s action, treasury prices retrenched as if they had returned to classic fundamental trading in the wake of a very strong headline nonfarm payroll reading which was significantly above estimates and the prior month. Tempering the washout was a 0.3% increase in the unemployment rate and disappointing wage figures. On the other hand, nonfarm payrolls in the 2 previous months were revised higher indicating the trend of the jobs market remains positive.

CURRENCIES:

While the dollar index posted a fresh lower low for the move last Friday, the index ultimately managed to aggressively reject that spike down move probably because elements of the monthly jobs report were stellar in might increase the prospects of a US Federal Reserve rate hike on June 16. However, currency markets might wait for a series of Fed discussions this week to measure the tone inside the Fed regarding the prospects of a rate hike. While we think the trend has turned down in the dollar, the risk to shorts increased because of the nonfarm payroll result.

European private services and composite PMI readings for May were softer than expected except for a slightly stronger than expected (but below the previous reading) Italian services PMI reading. With the BOJ Governor Ueda last week predicting Japanese CPI will slow later this year and that easy monetary policy will be maintained, the fundamental condition in the Yen remains negative. Even though Swiss consumer price index readings for May ticked lower, comments last week from the Swiss National Bank’s Schlegel indicating the bank cannot rule out further monetary policy tightening has not provided support to the currency. While the Pound has held up better than other nondollar currencies and saw better than expected S&P global composite and services PMI data for May, the currency posted a 3-day low early this week. Even though the Canadian dollar held onto last week’s significant 120-point rally, indications from the Bank of Canada they are likely to hold rates unchanged for the rest of this year casts a slightly negative fundamental case.

STOCKS:

While the stock markets showed gains and broke out to the upside in the NASDAQ and S&P contracts late last week, the markets displayed a delayed reaction to the relief provided by congressional passage of a debt ceiling bill. Clearly, NASDAQ shares are benefiting from ongoing long-term buying of companies expected to see major benefits from artificial intelligence technology. We also suspect the S&P saw additional lift today from stop loss buying from a massive net spec and fund short position of 437,160 contracts. While global equity market action was generally mixed there was a slightly positive tilt with up markets outnumbering down markets.

With a fresh new high for the move in the Dow futures and the highest trade since May 3rd, the bull camp obviously retains control of the market. The NASDAQ remains in an upward tilt as the index early last week was net spec and fund short which could mean the market is not overbought yet from a positioning perspective.

GOLD, SILVER & PLATINUM:

Gold and silver prices followed Friday’s breakdown with further notable losses early this week off dollar strength. Therefore, both markets damaged their charts and are likely to set back to consolidation support at recent consolidation lows. On the one hand, Chinese trade desks are suggesting buyers there are waiting on the premium and/or flat prices to cheapen before becoming buyers, but that should be offset by a move by the Indian government to reduce the gold import price basis for taxation. We would note that Indian buyers have also shown price sensitivity, and perhaps it will take a setback in gold and silver to consolidation support to get buyers in the world’s two largest consuming countries to turn buyers.

While silver held up relatively better than gold in the late washout last Friday and its chart are not severely damaged, silver might be able to avoid being dragged down by outside market action in Bonds, the Dollar and even gold. The platinum market finished last week under pressure but has close-in support on the charts. Like the rest of the metals markets, the palladium market faces residual outside market pressure from last week and a retest of consolidation support if global economic sentiment becomes significant risk-off.

COPPER:

While the copper market has been one of the strongest commodity markets over the last week, (which is surprising considering that recent official Chinese manufacturing PMI readings were disappointing) but were apparently fully offset by a strong private manufacturing PMI result. The copper market is also supported by the release of a Chinese Caixin Services PMI reading for May. Furthermore, the outlook for the US economy was boosted slightly, but not so much to foster concerns of Fed action as odds from surveys suggest only a 30% probability that the US Fed will hike rates next week. There are also whispers from Chinese analysts suggesting that beyond targeted stimulus for parts of the economy, there could be broad stimulus action like reducing interest rates.

ENERGY COMPLEX:

While Saudi Arabia and Russia have suggested the large Saudi July production cut promise of 1 million barrels per day is justified to “stabilize” the world energy markets we are skeptical. The Saudi oil minister also indicated the surprise move was an effort to create uncertainty for aggressive speculation in the markets. The Saudi production cut for the month of July is expected to be roughly 1 million barrels per day compared to the most recent figures from May. Furthermore, OPEC+ members yesterday decided to reduce overall production targets next January by an additional 1.4 million barrels per day.

Both product markets have started June on an upbeat note with RBOB continuing to outperform ULSD on the upside. In contrast to the RBOB futures market, average US retail pump prices for regular unleaded gasoline have fallen more than 5 cents a gallon since late Wednesday, and lower prices should help stoke demand. Natural gas prices were able to finish last week by breaking a 5-session losing streak with a mild gain on Friday, but they will start this week within striking distance of a new low for the move.

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BEANS:

Now that the macroeconomic condition has seemingly entered calmer waters, the focus of the soybean market will turn to the weather. At first glance, the US drought monitor shows a bifurcated growing area with a line running straight down just west of Omaha to Dallas. Comparing the May 23rd map with the May 30th map, an isolated extreme drought area has expanded in northern Missouri with Illinois beginning to see significant dryness in the upper 3rd of the state. It should also be noted that moderate drought has creeped into Indiana, Ohio, and northern Arkansas. The near-term weather forecast has chances for pop-up showers more likely to traverse extreme drought areas with other areas expected to have several systems passing through along with pop-up storms.

CORN:

With the upside breakout at the end of last week initially extended into this week, the corn market is obviously responding to the spread of drought conditions with portions of the northern 3rd of Illinois seeing drought conditions worsen, and large portions of Indiana, Iowa and Arkansas joining notable drought conditions from the May 23rd drought monitor maps into the May 30th drought maps! The most recent poor to very poor crop conditions ratings were close to the 10-year average, but it is very early in the crop. On the other hand, US corn in good to excellent condition is running 3% below average levels with that seasonal trend typically stair stepping down until September. However, in the latest meetings, Mexico has indicated they will fight the US over GM corn after talks failed to yield a solution last week.

On the other hand, Mexico has indicated they could raise the tariff on grain imports from non-US countries which do not have a free-trade agreement as the country attempts to support domestic corn prices.

WHEAT:

Wheat continues to be dragged higher by gains in corn and soybeans as all markets continue to inject weather premium into prices. Furthermore, the wheat market should see modest support from lower French wheat ratings and from another delay in the Indian monsoon arrival on the West Coast. The wheat market’s deeply oversold condition has left it vulnerable to heavy short covering when the weather, economic strength, or uncertainty about global crops emerge. Recent heavy rains in Kansas and Oklahoma have revived crops on parts of some fields, but it may make harvest more difficult because the revived crops are behind in development relative to other plants on the same field.

HOGS:

July hogs gapped higher on Friday and traded to their highest level since May 19, but we fear the rally may run out of momentum unless the cash pork market resumes its upward trend. Just last week the July futures were trading at a discount to the cash market, but the futures are now trading at a slight premium, and this could limit further gains. The market benefited from aggressive short covering last week after it put in a contract low the previous week. The USDA pork cutout, released after the close Friday, came in at $83.80, down 20 cents from Thursday but up from $79.67 the previous week. It was the first time in six sessions that the market closed lower, and it could put some pressure on the market early this week.

CATTLE:

August live cattle traded to contract highs for the fifth straight session on Friday. The market is in lofty territory and is vulnerable to a correction, but there has been no indication of top. The rally has been driven by expectations of lower production and strong cash cattle and beef markets. Cash live cattle prices were sharply higher last week. As of Friday afternoon, the five-day, five-area weighted average price was 181.36, up from 177.56 the previous week. The USDA boxed beef cutout was up $2.17 at mid-session Friday and closed $3.49 higher at $309.93. This was up from $299.94 the previous week and the highest it had been since May 1. The cutout has increased for six sessions in a row and in 11 out of the past 12. The USDA estimated cattle slaughter came in at 124,000 head Friday and 67,000 head for Saturday. This brought the total for the holiday-shortened week to 573,000 head, down from 625,000 the previous week and 608,000 a year ago.

COCOA:

Improved global risk sentiment in the wake of last Friday’s US jobs data, bullish equity market action, and a forecast the second global production deficit in a row could put the cocoa market in position to break out above its recent consolidation. July cocoa finished last week with a gain of 35 points (up 1.2%) for its third positive week in the past four. The steady decline in consumer inflation is expected to support consumption of discretionary items like chocolate. The latest supply/demand update from the International Cocoa Organization more than doubled the size of the 2022/23 global production deficit from their previous forecast. This would result in the largest back-to-back deficit total (367,000 tonnes) since ICCO records began in 1960.

COFFEE:

July coffee had an outside reversal down day on Friday, which could pressure the market early this week. However, ICE exchange stocks continue to fall, which suggests strong demand. The demand outlook should improve as inflation declines, especially for coffee shop and restaurant sales. The Brazilian real rallied to a 1 1/2 week high on Friday, and it is approaching its highest level since 2020. The strong currency should ease pressure on coffee growers to market their crops aggressively. Dry weather over Brazilian growing areas is expected to speed up the pace of the Arabica harvest, and this weighed on coffee prices late last week.

COTTON:

July cotton closed a bit weaker on Friday after the dollar strengthened, but December cotton held its gains. US cotton export sales for the week ending May 25 came in at 267,767 bales for the 2022/23 (current) marketing year and 75,567 for 2023/24 for a total of 344,328. This was up from 215,549 the previous week and was the highest they had been since February 16. China was the largest buyer at 230,544 bales, followed by Turkey at 64,255. China has the most commitments for 2022/23 at 3.219 million bales, followed by Pakistan at 2.064 million. The fact that China emerged as a strong buyer could be encouraging for the bulls.

SUGAR:

Sugar’s inability to benefit from strength in key outside markets or from improving global risk sentiment shows the impact of the bearish Brazilian supply outlook on the market. With few signs that Brazil’s Center-South production will slow down, prices are likely to remain on the defensive. July sugar fell a 5 1/2 week low on Friday and finished with a moderate loss. The market fell despite significant, two-day rallies in crude oil, gasoline, and the Brazilian currency, which would normally be expected to lend support to the market.

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