The treasury markets seem to overreact to last Friday’s better-than-expected nonfarm payroll headline result. In fact, a slight uptick in the nonfarm payroll reading should have been fully countervailed by a surprising jump in the unemployment rate and a significant downward adjustment in the two last monthly payroll results. However, it should be noted that global manufacturing PMI, construction spending, and ISM manufacturing employment, ISM manufacturing new orders, ISM manufacturing prices paid and ISM manufacturing PMI readings for August were all better than expected leaving the last economic news of last week released squarely in favor of the bear camp. With the hard down failure at the end of last week extended early this week and December bonds posting the lowest reading since August 25th, the bear camp has regained control.
Despite what could be considered a concerning jump in the US unemployment rate, the dollar has ranged sharply higher in a week where most jobs-related data was disappointing. However, the headline nonfarm payroll reading was surprisingly better than expectations but was countervailed by a strong downward revision in the prior two monthly results. In the end, the dollar has very little interest rate and/or macroeconomic competition and is likely to resume its July and August upward track on the charts. The upside extension in the dollar from last week has been negatively extended early this week despite news that a beleaguered Chinese real estate developer has come up with a debt payment.
After a generally positive opening last Friday, equities added to the gains through the US nonfarm payroll release, but then reversed course and tracked into negative territory ahead of mid-session. Obviously, investors were discouraged by a significant jump in US treasury yields and what seemed to be an overreaction to the nonfarm payroll headline. The markets were undermined as a result of the resignation of Walgreens CEO and broad range of quarterly revenues. Global equity markets at the start of this week were lower with declines measured in fractions of a percent to as much as 2% lower in the Hang Seng.
GOLD, SILVER & PLATINUM:
Not surprisingly, the gold and silver markets are under attack early with the dollar breaking out up and extending its sharp recovery from last week. Adding into the bearish tone is higher US interest rate signals and deflationary services and composite PMI readings overnight from China and the euro zone. Unfortunately for the bull camp, both gold and silver saw large outflows from ETF holdings on Friday with gold holdings last week declining by 43,390 ounces and silver ETF holdings down by a very significant 7.7 million ounces last week. The August 29th Commitments of Traders report showed Gold Managed Money traders net bought 32,439 contracts and are now net long 58,134 contracts. Non-Commercial & Non-Reportable traders are net long 144,665 contracts after net buying 25,399 contracts.
Not surprisingly, the platinum market extended last week’s downside reversal with a major failure on the charts this morning as outside market influences weighed heavily on prices to start the holiday shortened trading week. A sign of deteriorating sentiment toward platinum was seen with an outflow from ETF holdings last week of 24,084 ounces which is a 1% decline in holdings in just 5 sessions. With soft Chinese and European composite PMI readings very disappointing, negative dollar action and higher interest rate signals, it is not surprising October platinum failed to hold support at $950.
Obviously, extremely soft Chinese Caixin services PMI readings for August serve to exaggerate negative macroeconomic pressure on copper prices early this week. While a beleaguered Chinese real estate developer has made interest rate payments and moderated anxiety somewhat, fear of soft Chinese copper demand remains front and center this morning. On Monday, LME copper warehouse stocks jumped by a very significant 3,150 tonnes and that bearish supply news was followed up by a 1.7% increase in Chilean copper production in the most recent monthly output report (July).
The upside extension/gap in September crude oil early this week follows a gap up opening last Friday presenting extremely bullish technical signals for the delivery contract. However, the actively traded October contract made a new high for the move and promptly fell back suggesting the oil market is not without its vulnerabilities. Apparently, the crude oil market is discounting disappointing Chinese scheduled data perhaps because of an interest rate payment by a beleaguered Chinese real estate firm and or because the trade continues to draft buying interest from evidence of tightening US crude oil supplies. However, seeing US crude oil supplies continue to fall precipitously in the face of strong US production discounts the idea of softening demand.
Despite weekend and recent stressful weather conditions, strong crush, increased USDA sales announcements, and record Indian edible oil consumption, November soybean prices have forged a fresh lower low for the move early this week and appear to be headed even lower. In looking at weather, recent and ongoing stressful conditions have likely had some adverse impact on the crop, but it is possible the trade is moving quickly to discount the weekly crop conditions report as less impactful on yields. As in previous weeks, the crop conditions report is expected to show a significant worsening of crop conditions perhaps by two to three percentage points. In looking ahead current hot and dry stressful conditions are expected to give way to the potential for monsoon type rains in portions of the southern Midwest.
The long holiday weekend is behind us and prices are holding steady, despite a rally in the US dollar and weaker energy prices on Tuesday morning. The extreme heat in the western Midwest breaks today and rains have been seen in North Dakota and Western South Dakota with only a few other scattered showers around the Midwest over the weekend. By late this week, Minnesota, Wisconsin, and Indiana are expected to see showers, however Iowa and Illinois will miss out until early next week. After today the heat retreats to the Southwest corn belt until late this coming weekend. 6-10 day forecast now show above normal precipitation across the Great Plains with normal temperatures throughout the Midwest. Black Sea corridor talks did not produce any progress yesterday with Russia holding out for a reconnect to the Swift system for their Ag Bank.
Russian attacks on Ukraine’s Danube ports over the weekend and grain corridor talks between Putin and Erdogan, which ended with little progress, have given prices a slight boost after the holiday weekend. The bearish large deliveries of last week were cut to 221 contracts of Chicago wheat delivered overnight and the majority stopped by commercial hands. Argentina received beneficial rains over the weekend and India is expecting better rains in September after a very dry August.
October hogs could be drawing support from the sharp reduction in Iowa hog weights last week, to their lowest level this year. Weights typically start to increase this time of year, and the 4-pound decline was the biggest single-week drop on record. Last week’s export sales report showed pork sales for the week ending August 24 were the highest since April 27. This marked the first time that sales have come in above 30,000 for three straight weeks since late April. China made its biggest purchase since early July. The USDA pork cutout, released after the close Friday, came in at $93.64, up $2.54 from Thursday and up from $93.10 the previous week. October is National Pork Month, and procurement for that event typically picks up in the first week of September, which could provide some support to the cash market this week.
October live cattle continue to consolidate inside a 7-week range, as tight cattle supplies are offset by a softer tone in the cash market. The USDA boxed beef cutout was up $1.61 at last Friday’s mid-session and closed 70 cents higher at $314.49. This was down from $317.90 the previous week. Much like the cattle futures, the cutout has been in a choppy, sideway pattern since mid-August. Cash live cattle trade was lower last week. As of Friday afternoon, the five-day, five-area weighted average price was $181.86, down from $182.33 the previous week. The USDA estimated cattle slaughter came in at 122,000 head Friday and 8,000 head for Saturday. This brought the total for last week to 629,000 head, up from 626,000 the previous week but down from 642,000 a year ago.
The cocoa market has been in a longer-term uptrend since September of 2022 with prices rising 67% during that timeframe. While it was able to fully recover from a 303-point selloff in early August (down 8.3%) to reach a new high for the move, cocoa’s price action late last week may point towards another sizable pullback during early September. December cocoa continued to see downside follow-through from last Thursday’s 12 1/2 year high as it went on to post a moderate loss for Friday’s trading session. For the week, however, December cocoa finished with a gain of 139 points (up 4.0%) and a third positive weekly result in a row. A selloff in the Euro and British Pound put carryover pressure on cocoa prices as that will make it more difficult for European grinders to acquire near-term supplies.
Coffee prices have made a lukewarm start to September as they continue to be pressured by an uptick in production this year in Brazil and Central American. Out-of-home demand is showing signs of improvement, however, and that can help to underpin coffee prices before they retest their mid-August lows. December coffee continued to see choppy action as it followed through on last Thursday’s negative reversal and finished Friday’s trading session with a sizable loss. For the week, December coffee finished with a loss of 1.25 cent (down 0.8%) which was a third negative weekly result over the past 4 weeks. Weaker global risk sentiment in front of the holiday weekend may negatively impact out-of-home coffee demand, and that put pressure on coffee prices.
December cotton was sharply lower at the start of this week after trading to its highest level in just over a year on Friday. US Crop conditions were close to record low levels as of last Monday, and a resumption of hot weather for the US reduces the chances of any significant recovery for the crop this season. The 6-10- and 8-14-day forecasts call for much above normal temperatures to continue, centered on Texas but less extreme in other regions of the south. There will be increased chances of precipitation, but that is not necessarily helpful, as it may be too late to help the crop’s development and it may damage open bolls. Last week, the USDA Attache lowered their estimate for China’s 2023/24 cotton production to 5.9 million tonnes from their previous forecast of 6.1 million.
After a 3-day losing streak to finish August, sugar’s abrupt turnaround on Friday lifted prices to within striking distance of a new 2 1/2 month high. While Asian supply issues continue to underpin prices, sugar prices may have a difficult time climbing above their 2023 highs from late April. October sugar regained strong upside momentum late in the day as it finished Friday’s trading session with a sizable gain. For the week, October sugar finished with a gain of 98 ticks (up 3.9%) and a second positive weekly result in a row. India may be heading for its lowest monsoon rainfall in 8 years after they received record low August rainfall that was 36% below their long-period average.
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