Treasury prices remained within last Thursday’s trading range following last Friday’s October US jobs report which produced offsetting views toward the US economy. In fact, some financial markets saw the data reducing the prospect of a jumbo rate hike from the US next month while the equity markets were happy with signs the economy is attempting to hold together despite the rising rate environment. With the December bond contract forging a recent series of higher lows and building a consolidation pattern just above 118-22 and the markets fresh off a major fundamental event/signpost a temporary reevaluation of last week’s washout is deserved.
While US equities saw Last Friday’s US nonfarm payroll result as a sign of ongoing growth under the rising interest rate regime, the dollar trade interpreted the larger than expected increase in the US unemployment rate as a development that could push the Fed away from a jumbo rate hike in December. In retrospect, US economic data over the past 2 months has settled into a pattern with positive economic data usually offset by negative economic data within the same trading session which to us increases the chance of a soft US landing.
We see the euro gaining from a “relief bounce” and not from buying anticipating last week’s low was a key low. The bias remains down and the best the euro bulls can hope for is to win by default for several sessions. The coiling action in the Yen continues with definitive fundamentals lacking for both the bulls and bears. This week could be a good week to trade the range. In retrospect, the Swiss franc was massively oversold from the end of October early November washout down to 99.02. Like most other non-dollar currencies the Pound is winning by default at the start of this week with a combination of technical short covering and we suspect a very minimal amount of speculative buying. Unlike most other non-dollar currencies, the bull camp has a fundamental bullish argument for the Canadian dollar with the Canadian economy adding significant job gains of 108,300 last month which is a large number compared to the overall size of the Canadian job force relative to the US.
In retrospect, the equity markets held up impressively late last week in the wake of an extension of surging rates. Apparently, last Friday’s monthly payroll report supported stocks from the “Goldilocks” perspective with the jobs market holding together enough to temper recession/earnings fears, but not so hot that further jumbo rate hikes are expected. The market saw favorable Hershey sales and profit forecast, but that was offset by comments from Elon Musk indicating the Twitter suffered a massive drop in revenue because activist groups pressured advertisers.
The markets continue to “survive” the aggressive hawkish actions of the Fed with the US economy also “surviving” the spillover of the battle against inflation. Early this week, the Dow Jones looked to open moderately higher with sentiment more positive than negative. Yet another indirect negative for the NASDAQ is confusion regarding layoffs at Twitter.
GOLD, SILVER & PLATINUM:
While the gold and silver markets have not completely capitalized on the opening slide in the US dollar early this week, seeing gold and silver prices remaining just under last week’s spike up highs indicates the bull camp holds an edge into the US opening this week. Apparently, the markets last Friday saw the October US jobs report as a sign that next month the US Federal Reserve might reduce the magnitude of their anticipated next hike and that in turn hammered the US dollar and in turn lifted several dollar sensitive commodities like gold and silver. Unfortunately for the bull camp investors reduced their gold ETF holdings for a 7th straight day on Friday, with gold ETFs last week reducing holdings by a total of 732,827 ounces.
In retrospect, fundamental news for palladium over the past several weeks has been definitively negative, with talk of industrial use rotating from expensive palladium to less expensive platinum. Furthermore, reports indicate Indian platinum imports are picking up significantly from just 1.14 tonnes last September to 27 tonnes this November which is a record. From a short-term perspective, the platinum market is showing signs of becoming short-term overbought with the market maintaining a net long since the middle of September! Last week platinum ETF holdings declined by 6931 ounces with a decline of 10,330 ounces on Friday alone.
Like other metal markets early this week, the copper market has not taken out last week’s strong spike up high, but prices remain cushioned by $3.60 and remain within striking distance of last week’s high. However, disappointing Chinese import export data for October hits at last week’s optimism flowing from rumors of China possibly reducing some travel restrictions. Adding into the Chinese import/export negative tilt on copper early this week was a decline in Chinese September copper imports of 1.5%. On the other hand, Chinese January through October copper concentrates and ore imports managed to gain 8.4% over year ago levels. It should also be noted that January through October Chinese unwrought copper imports increased by 8.8% year-over-year.
While the December crude oil contract early this week did not post a higher high for the move, bullish demand news, a weaker dollar and generally positive macro sentiment are in place, and therefore, we expect a new high for the move later on this week. As indicated, the bull camp is bolstered early this week by news of a 9.4% jump in Spanish September crude oil imports and by news that Chinese October crude oil imports jumped reportedly for new refineries. Even the supply-side of the equation benefits the bull camp with news that crude oil in floating storage on the week falling 18% with European floating storage down by 32% and US Gulf Coast floating storage declining by 77%. According to the press, the rally last week was attributable to forward progress on a Russian price cap deal. However, rumors that China may relax Covid restrictions with an opening of foreign air travel should serve to spark buying of physical commodities across-the-board. Unfortunately for the bull camp, reports are that the G7 Russian oil price cap will only be implemented on seaborne supply which indicates one hole already in the effort to reduce Russian capacity to fight the war.
While the December gasoline contract spiked higher last Friday, by the close the market had given up more than half of the initial gains. Even the diesel market flared higher last Friday with the potential for even tighter global diesel stocks likely increased if China relaxes Covid travel restrictions. While the winter storm in the Northwest expected to yield temperatures in Western and central US to be 10 to 15 degrees below normal and 2 to 10 degrees below normal in the rest of the country, the trade has seemingly jumped into an early winter demand reaction.
The soybean market remains in a short-term uptrend as export demand has come in better than expected, and near record high crush margins should support strong domestic demand. In addition, the outlook for increased biodiesel demand plus a surge higher in crude oil and some crop uncertainties in Argentina are all factors which have helped support. China imports for the month of October came in at 4.14 million tonnes, down 19% from a year ago and their lowest for any month since 2014. High prices and poor crush margins in China were seen as reasons for the decline. Fears of increased COVID restrictions in China helped to pressure the market early this week. Cumulative soybean sales have reached 58.0% of the USDA forecast for the 2022/2023 marketing year versus a 5 year average of 55.7%.
December corn closed higher on the session last Friday, but well off of the highs of the day. The action was considered a bit negative given the very strong developments in outside market forces and strength in the other grains. Crude oil surged higher and up to the highest level since August 30, and a collapse in the US dollar helped to spark buying across a wide range of commodity markets including metals and softs. Continued talk of weak demand helped to limit the buying support. For the monthly USDA supply/demand report, traders see corn ending stocks near 1.207 billion bushels, 1.050-1.390 range, as compared with 1.172 billion in October. Traders see yield near 171.9 bushels per acre, 171-174.5 range, as compared with 171.9 in October.
Demand may not be as bad as traders had feared and supply may not be as high, as poor weather in the US, Argentina, and Australia may lower the output in key exporting nations. Egypt is tendering for wheat. A very sharp collapse in the US dollar last Friday sparked aggressive buying across a wide range of commodity markets including wheat. Metal markets were higher and crude oil jumped $4.50 per barrel to this added to the positive tone. Rain in the forecast for the Plains helped to limit the advance. The warmest October in 40 years in France has traders nervous with the more advanced growth of the crop which leaves the crop more vulnerable to a frost late in the season. For the USDA monthly supply/demand update, traders see wheat ending stocks near 578 million bushels, 541-606 range, as compared with 576 million bushels in October. For the world ending stocks, traders see wheat stocks near 266.52 million tons, 264.70-268.50 range, as compared with 267.54 million in October.
Russia agreed to resume the export deal allowing safe passage of Ukrainian crop exports, and this came as a surprise after they withdrew from the deal last weekend. After this news, it is impressive that the market closed higher on the week.
The hog market remains in a short-term downtrend but December is now trading at a stiff discount for this time of the year. The CME Lean Hog Index as of November 2 was 92.34 down from 93.29 the previous session and 94.15 the previous week. December basis on Nov 2 was 8.94, up 0.90 on the day. Last year basis was 4.05 and the 5 year average is 3.19. The USDA pork cutout, released after the close Friday, came in at $94.72, down 18 cents from Thursday and down from $99.35 the previous week. This was the lowest the cutout had been since February 2. The USDA estimated hog slaughter came in at 468,000 head Friday and 164,000 head for Saturday. This brought the total for last week to 2.577 million head, up from 2.557 million the previous week but down from 2.612 million a year ago.
The cattle market may struggle and see more long liquidation selling if the beef market remains weak. Open interest remains high and the market is vulnerable to long liquidation selling if support is violated. The USDA boxed beef cutout was down 37 cents at mid-session Friday and closed $1.43 lower at $263.75. This was up from $263.26 the previous week. Cash live cattle trade was quiet on Friday after active days on Wednesday and Thursday. The average pricing was close to unchanged on the week. As of Friday afternoon, the five-day, five area weighted average price was 151.99 versus 151.93 the previous week. Traders are expecting declining slaughter pace in the weeks ahead which may provide underlying support.
Cocoa prices have had trouble sustaining a long-term upside move since the start of the third quarter. A major source of pressure on the market has been concern over near-term demand, but indications that global demand may be in better shape that earlier thought should provide underlying support to the cocoa market. December cocoa was able to break out of their July/November consolidation zone as it reached a 12-week high before finishing Friday’s trading session with a sizable gain. For the week, December cocoa finished with a gain of 132 points (up 5.7%) which broke a 3-week losing streak.
Coffee prices saw volatile action last week, but were able to stay clear of their 15-month low in late October. If the market can find relief from near-term demand concerns, coffee may be able to sustain upside momentum this week. December coffee finished a wide-sweeping trading week by holding within a fairly tight inside-day range before finishing Friday’s session with a moderate gain. For the week, December coffee finished with a gain of 5.95 cents (up 3.5%) which broke a 4-week losing streak.
December cotton closed sharply higher for the fourth session in a row on Friday. This was after the market put it a spike bottom on Wednesday. This was the first time in four sessions the market did not close limit up, but limits were expanded. The market closed 15.76 higher for the week after the market closed on its low the previous week. This was the first week since September 6 that the market closed higher. Traders appear to have turned much more optimistic about cotton now that it has fallen 62.50 (47%) from its May high.
Sugar’s positive turnaround last week was fueled in large part by renewed strength in its key outside markets. While this has received most of the market’s attention, there have been bullish supply/demand developments that can help sugar prices maintain upside momentum this week. March sugar started the day by breaking out above the highs of the previous 3 sessions as it rallied up to a new 2 1/2 week high before finishing Friday’s trading session with a sizable gain. For the week, March sugar finished with a gain of 113 ticks (up 6.4%) which broke a 2-week losing streak.
A sharp rally in energy prices resulted in crude oil reaching a 2-month high and RBOB gasoline reaching a 4-month high. This provided sugar with carryover support as that can help to strengthen near-term ethanol demand in Brazil and India.
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