In retrospect, it appears that the Treasury markets saw a wave of economic optimism late last week perhaps because of the kickoff of the holiday shopping season which has resulted in December bonds falling back from last week’s high by two points. However, soft economic data is likely to return with a chain of softer than expected data later this week likely to result in an upside breakout in bonds to the highest level since September 26th. It should be noted that this week will bring another US treasury auction cycle with treasury supply expanding to refund/finance the ever-expanding US debt load.
We leave the edge in the Dollar with the bear camp as the market has embraced the themes of softening in the US economy, a sustained on hold US central bank policy view, and negative chart action. Certainly, the 103.00 level could be seen as a shelf of support, but the tone of US economic data in the first three sessions this week is likely to set the trend in the dollar for the rest of this year. In fact, without a better-than-expected US new home sales report and/or higher equities from upbeat US Cyber Monday sales, we see the dollar failing to hold 103.00.
While the euro remains near the top of the last two week sideways to slightly higher consolidation pattern, euro bulls need constant evidence of softening in the US economy to extend the November rally. With a new high for the move and the highest trade since September 1st, the Pound looks to be the leadership currency early this week. With massive volatility over the prior two trading sessions and a short-term overbought technical condition action in the Canadian Dollar, early this week is likely to set the tone for the Canadian through the end of this year.
Global equity markets at the start of this week were mostly lower with declines ranging from 0.2% to 0.7% in the Australian market. In the rearview mirror, the equity markets saw record Friday online spending with a gain of 7.5% over last year and yet that has not stoked bullish investment interest in the early going this week. However, buzz from “Cyber Monday” is likely to help underpin sentiment early and that leaves a minimal bullish bias in place. While the uptrend throughout November in the S&P has been a stealth rally, the frequency of higher highs and higher lows and the magnitude of the rally over the last 30 days (440 index points) provides a bullish backbone for the markets. The Dow Jones sits just under the highest price levels since the end of August with large companies likely riding a wave of support from the general view that interest rates have peaked and inflation costs at companies are now moderating.
GOLD, SILVER & PLATINUM:
The precious metals markets will now be assessing last week’s Black Friday sales figures as it looks forward to Cyber Monday. Clearly, the gold market has seen the bull camp revitalized by signs of a resumption of the dollar’s downtrend and has managed the rally despite evidence of a decline in Chinese October net mainland gold imports through Hong Kong. Therefore, the gold trade continues to focus on dollar and interest rate action at the expense of classic internal supply and demand developments. In fact, while the story should be regarded as “old”, the market continues to pound the drum on an on hold global central bank theme.
While the copper market appears to have settled into a consolidation pattern bound by $3.82 and $3.72, the upward bias from the mid-November low leaves the longer-term technical trend pointing up. However, the trade continues to monitor contract negotiations regarding treatment charges for Chinese/Asian customers using the magnitude or lack of magnitude of the TC charges as a relative measure of demand. If treatment charges are high, that might indicate Chinese demand is strong enough to give the copper companies pricing power.
With a poor early trade this week, the bias in the crude oil market looks to remain down with a test of the $72.50 level likely in the days ahead. However, crude oil in floating storage last week declined by 2.9% with sharp declines seen in Europe and minimal declines seen in the Asian Pacific region and that should help cushion the market against residual energy demand fear selling. The bull camp is undermined while the bear camp is emboldened by signs of turmoil within OPEC+ following the postponement/delay of their meeting scheduled for this past weekend. Apparently, part of the rift among the cartel is the result of South African compliance with oil quotas but Bloomberg indicates some progress on that conflict has been made. Despite talk of a cold start to the month of December, Asian natural gas prices finding support at $16.00 and the EIA weekly withdrawal week, the gas market has posted another contract low.
Although Center-West Brazil saw showers over the weekend, those were anticipated, and the market is looking at a more stressful week on tap and that is giving prices a boost. Week 2 of the forecast still holds some potential for more relief rains. AgRural pegs Brazil’s total bean planting pace at 74% complete, which is the slowest in eight years. Rio Grande do Sul is especially behind at only 26% planted, compared to 64% average. Santa Catarina, Minas Gerais, and Sao Paulo areas are all 20% or more below the average pace.
Weak action to finish last week has the corn market sitting just above the 2023 lows and there was little weekend bullish news to turn prices higher. US Gulf corn is competitive and with prices of the US dollar sitting at a nearly three month low, US exports may have a chance to see a boost. Friday’s weekly export sales were above the highest guess. The White House is concerned about raising gas prices in an election year and has stalled approval of E-15 ethanol blend nationwide. AgRural has Brazil’s Center-South first crop corn planting at 83% done as of the end of last week.
Sideways action remains the theme in the wheat market to start the week and the chart offers little direction. The wheat trade saw some small, short covering on rising Russian prices and reduced Ukrainian exports, however, the overall trend continues to stay within the two-month sideways pattern. Interior Russian wheat prices are up $12 – $15 a ton above last month. Russia’s ban of hard wheat exports, specifically durum, will extend from December 1, 2023, to May 31, 2024, however, Russia is not a major exporter of the Durum class. Weekly export sales on Friday were at the lower end of the range of guesses.
Hog prices collapsed last Tuesday on reports the Chinese government views their nation’s pig supply as burdensome. February hogs broke below their three-week consolidation and traded to their lowest level since October 27. The Chinese government commented that its hog herd of 4.21 million was too large, and this canceled any hopes that Chinese demand would relieve burdensome US pork supplies. US pork production is projected to have a larger than average increase this quarter, and next quarter it is expected to be close to unchanged during a period when it typically declines by 200-300 million pounds.
February cattle have been in a choppy, sideways pattern for several sessions, being pressured by weaker cattle and beef prices and indications that the herd is expanding but drawing support from the market’s oversold condition. The USDA estimated cattle slaughter came in at 126,000 head yesterday. This brings the total for the week so far to 251,000, unchanged from last week but down from 258,000 a year ago. The USDA boxed beef cutout was down 24 cents at mid-session yesterday and closed 6 cents higher at $295.81. This was up from $295.67 the previous week.
Cocoa prices will start this week on course for their twelfth positive monthly result over the past 13 months, but they have started to have tightening coiling action just below last Tuesday’s 45-year high. If global risk sentiment has a lukewarm start to the week, cocoa could finish November with a sizable pullback. March cocoa found early support, but lost strength late in the day to finish Friday’s trading session with only a modest gain. For the holiday-shortened week, however, March cocoa finished with a loss of 19 points (down 0.5%) which broke a 7-week winning streak and was a negative weekly key reversal.
The coffee market saw choppy price action last week as it continues to hold below a 4 1/2 month high from November 16th. All four of last week’s closes were above the 200-day moving average, which may be evidence that coffee can regain and sustain upside momentum going into month-end. March coffee shook off early pressure and rallied through midsession, and then lost strength late in the day to finish Friday’s trading with a mild loss. For the week, however, March coffee finished with a gain of 1.50 cents (up 0.9%) which was a third positive weekly result over the past four weeks.
It is hard to build a bullish case for March cotton when Brazil stands ready to make up for the shortfall in US production this season. The market seemed to find support from a decent export sale report on Friday, but it failed to hold those gains and traded its lowest level in a week early on Monday. The export sales report showed US cotton sales for the week ending November 16 at 322,212 bales for the 2023/24 marketing year and 5,720 for 2024/25 for a total of 327,932. This was down from 358,735 the previous week and the lowest since October 19, but it was still the fourth highest weekly total since June.
Sugar’s pullback on both sides of the Thanksgiving Day holiday has left the market on course for its first negative monthly result since June. With a fresh update on Brazil’s supply situation at midsession today, sugar prices could see a sluggish finish to November. March sugar found moderate early support before turning lower at midsession as it reached a 3 1/2 week low to finish Friday’s trading session with a sizable loss. For the week, March sugar finished with a loss of 20 ticks (down 0.7%) and a third negative weekly result in a row.
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