With treasury prices posting gains late last week in the face of an extremely thin US scheduled report slate and a bounce in equities, we assume the action was largely inspired by short covering/position squaring ahead of the weekend. In retrospect, the treasury markets end the trading week with mixed views toward the economy with monthly payrolls soft and the latest initial claims data suggesting the jobs market continues to hold together. Going forward, the markets will see increased influences from upcoming central bank meetings with more banks expected to pause than hike. While there are no critical US scheduled economic reports on Monday, the treasury trade is presented with 3 days of auctions and given the upcoming Fed decision the auction impact could be more important than usual this week.
The dollar appeared to falter last Friday, possibly because of a lack of scheduled data and perhaps from simple profit-taking after nearly 2 straight months of gains. In fact, the Chinese currency closed at the lowest levels since 2007 in a sign that domestic capital is fleeing China. Similarly, capital is fleeing from Japan creating chatter in the market of significant intervention once the Yen encounters the 150 per Dollar level. While the corrective setback in the dollar early this week has impacted nondollar actively traded currencies, the impact of dollar weakness has been more pronounced in equities and many commodity markets.
The stock markets managed to shake off weakness late last Friday following a wave of lower global market signals and managed the recovery in the face of negative sales news from Kroger. The markets also managed to discount spillover pressure on Apple suppliers from the Chinese ban on government employees owning Apple phones. In a positive note, the market saw chatter from talk that food companies might be the target of buyouts directly ahead. Global equity markets at the start of this week were higher except for the Hang Seng which traded 0.5% lower. With a 3 day high early this week in the S&P and the near sweep of positive global equity market action overnight the bull camp has a small measure of control from both fundamental and technical perspectives.
GOLD, SILVER & PLATINUM:
While the headlines from the press early this week suggest that gold and silver prices are higher off speculation of hot inflation from the US later this week, we suggest that is an overstatement or not the case yet. At least recently, the major focus of the gold trade has been the direction of the dollar with the direction of treasuries periodically taking control. Therefore, seeing the dollar correct after extending its uptrend last week some gold and silver bulls are hopeful the dollar will have trouble extending the upward pattern in the coming week. While the US Fed decision is still more than a week out, Fed dialogue and US inflation data will be given added importance as the trade attempts to predict the outcome of the September 20th Fed meeting.
As goes the Chinese economy, goes the copper market! Market sentiment turned positive toward the Chinese economy early this week following a series of fresh Chinese policy changes designed to stimulate the economy. However, the market is also lifted because August Chinese new bank loans jumped more than expected. There are also reports on the ground of increased retail activity in China and China relaxed regulations for insurers to invest in the stock market. Furthermore, two major cities in China eliminated all curbs on home purchases to attract buyers and in turn pull the Chinese property market out of stagnation.
Even though the energy markets are presented with a positive global macroeconomic vibe to start this week, US crude oil prices have tracked in negative territory. From the tropical storm/hurricane sector hurricane Lee has skirted the US East Coast already and headed out to sea to dissipate and tropical storm Margot also not a threat to landfall anywhere and the tropical wave off the coast of Africa many days off determining its track (into the Gulf of Mexico or up the East Coast) traders are likely to keep their focus on tight supply.
With weather becoming less important, recent bearish supply news from South America and the upcoming world agricultural supply and demand report, we see a narrower range early this week. However, the bull camp has some residual ammunition with a developing pattern of export sales to China and unknown destinations over the last 2 weeks and expectations call for another week of deteriorating crop condition readings on Monday afternoon. On the other hand, the magnitude of recent sales are more psychologically supportive than fundamentally and statistically important. In fact, with the recent upgrade in southern hemisphere supply from the last crop and projections of larger crops next year, the November soybean contract is facing a significant price juncture through the Tuesday report.
Crop conditions and Tuesday’s USDA supply and demand report will be the market’s focus to start the week. Last week’s trading range of only $0.15 highlights the lackluster action as traders pare down risk and wait on any aggressive positioning until after the USDA report. Expectations are for a slight decrease of 1-2% in conditions, but with the early harvest starting, condition reports will become less of a factor over the next few weeks. Rain fell over the weekend across Nebraska, Iowa, and northern Illinois. Early harvest across most of the Midwest will be ramping up this week and temperatures will remain very moderate with highs in the 60s and 70s. The 8-14-day forecasts will bring back some warmth across most of the Midwest which should aid harvest as well.
Tuesday’s Supply and Demand report is expected to be relatively neutral but will set the stage for the rest of the month, until the Quarterly Stocks report Sept 29th. Ending stocks are expected to be little changed from last month and there will not be any update to US wheat production. This report is more about corn and beans. December Chicago prices have stayed in the $0.25 range for the last 7 days. Friday’s new contract low in Chicago negated the earlier week key reversal up although, KC prices did not make a new low Friday and may still have a chance to build on the positive technical look.
The selloff in October hogs last Friday took the market back to the bottom of an upward sloping channel it has followed since the middle of August, and that level could be key support today. US pork export sales for the week ending August 31 came in at 26,266 tonnes for 2023 delivery and 3,119 for 2024, for a total of 29,385. This was down from 37,252 the previous week and was the lowest since August 3. However, this continued a four-week pattern of weekly sales coming in close to or above 30,000 tonnes, which is an improvement over the previous three months. Cumulative sales for 2023 have reached 1.301 million tonnes, up from 1.159 million a year ago but below the five-year average of 1.310 million. The CME Lean Hog Index as of September 6 was 86.19, up from 86.01 the previous session but down from 90.67 the previous week.
It will take a while to rebuild cattle inventory, and traders say producers are patient sellers. October cattle have been under the negative technical influence of a key reversal top on July 20, and they could be in position to test that level this week. The USDA estimated cattle slaughter came in at 125,000 head Friday and 51,000 head for Saturday. This brought the total for last week to 559,000 head, down from 629,000 the previous week and 606,000 a year ago. The estimated average dressed cattle weight last week was 823 pounds, up from 820 the previous week but down from 830 a year ago. The 5-year average weight for that week is 827 pounds. Estimated beef production last week was 458.8 million pounds, down from 502 million a year ago. The USDA boxed beef cutout was up $1.89 at mid-session Friday and closed $1.24 higher at $312.90. This was down from $313.79 the previous week.
Cocoa prices continue to hold their ground within their late August/September consolidation zone as they have found support from bullish supply developments. Unless global risk sentiment takes a negative shift early this week, cocoa is likely to climb up to a new 12 1/2 year high over the next few weeks. December cocoa was able to build onto early support as it went on to post a sizable gain during Friday’s trading session. For the week, December cocoa finished with a gain of 49 points (up 1.4%) which was a fourth positive weekly result in a row.
Coffee’s 2-day pullback has put the market within striking distance of a new 2 1/2 year low. Unless the market can find bullish supply developments that can offset increasing Brazilian production, coffee prices are likely to remain on the defensive this week. December coffee was unable to find its footing as it fell to a new 3-week low before finishing Friday’s trading session with a moderate loss. For the week, December coffee finished with a loss of 3.25 cents (down 2.1%) and a second negative weekly result in a row. Brazil and Honduras are seeing production increases this year that have boosted their exports, and that continued to weigh on coffee prices going into the weekend.
We expect to see December cotton consolidate ahead of Tuesday’s USDA supply demand report. The dollar has had its longest weekly winning streak since 2014, which does not bode well for US cotton exports. Weekly export sales are slow, but despite all the concerns about China’s economic health, they have been largest buyer this year. The weather in the southern US is becoming less extreme, and here are increased chances of rainfall in Texas. However, this may be too late to offer much help to the crop. Central Texas is expected to receive as much as 400% of normal rainfall in the next seven days. For the USDA report, the average trade expectation for US 2023/24 cotton production is 13.57 million bales versus 13.99 million in the August report. Exports are expected to come in around 12.36 million bales versus 12.50 million in August, and ending stocks are expected at 2.87 million versus 3.10 million in August.
After reaching a 6-week low on August 23, March sugar rallied 3.84 cents (16%) in less than three weeks as it found considerable strength from supply developments in south Asia. Brazil is heading for record high sugar exports this season, however, and that should offset a large portion of expected export declines from India and Thailand. March sugar fell from a new contract high into negative territory as it finished Friday’s trading session with a moderate loss and a negative key reversal. For the week, March sugar finished with a gain of 0.55 cent (up 2.1%) which was a third positive weekly result in a row.
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