Weekly Futures Market Summary

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BONDS:

While the US scheduled data flow late last week in total could have sent treasury prices higher, the trade apparently isolated the 17.3% jump in housing starts as the primary reading as bond prices at times were 20 tics lower after the data. On the other hand, the Michigan consumer sentiment index for July (preliminary reading) was a disappointment as it fell below expectations and was nearly 5 points below the prior reading. Obviously, the bear camp controlled the action from the strength in US equities and the increased chatter of an upcoming stimulus package.

CURRENCIES:

The dollar index appeared to reverse course aggressively last lain a compacted midsession decline with the index returning to this week’s 25 day low. Apparently, the currency trade ultimately thinks the US will bring the infection flare under control and/or that the US economy will stand up to the 2nd wave until it is brought under control. It also appears as if the currency trade is pressuring the dollar off gradually rising vaccine hope, but perhaps because of increased hope for a stimulus package agreement. While the dollar has not officially broken out to the downside early his week, the currency index appears to be poised to fail and reach the lowest level since the June 10th spike low.

With an upside breakout in the euro putting the currency up to the highest level since the panic peak in March, it is clear that progress on an EU recovery fund, combined with technical damage in the dollar looks to extend the July uptrend pattern. Apparently, the bull camp is not limited by anemic German producer price readings or by a growing net spec and fund long position. Euro positioning in the Commitments of Traders for the week ending July 14th showed Non-Commercial & Non-Reportable traders were net long 163,172 contracts after increasing their already long position by 4,959 contracts. With the breakout the next upside targeting/resistance in the September euro is seen at 1.1540.

Clearly the Yen was temporarily undermined by disappointing Japanese import and export data for June. Certainly, imports on a year-over-year basis were not as bad as expected but they still contracted by 14.4%. On the other hand, the spike down move in the Yen pushed prices down to the lowest level since July 8th but then the market soundly rejected that slide and looks to settle back into a range with a solid support zone at 93.15. While the Swiss technically remains mired within a rather wide sideways consolidation track for the month of July, strength in the euro, a potential downside breakout in the dollar and an overall uptrend bias since the March low, leaves the bull camp with the edge. However, the market will probably encounter psychological resistance at the recent highs of 1.0701.

STOCKS:

Apparently, the bull camp continued to manage to hold the upper hand late last week despite the extending pattern of new record daily infection counts. At least in last Friday’s action, the threat from the virus appears to have been more than offset by an increase in market expectations for progress on another US stimulus program in the coming weeks. Recent market expectations peg the upcoming fiscal stimulus to be between $1 trillion and $2 trillion, but there would appear to be more political wrangling in the current stimulus effort than any of the previous programs. In a sign of ongoing positive leadership in the NASDAQ, the index recorded 65 new highs in the Friday trade.

While the S&P appears to be under some pressure as a result of the virus news early this week, the market should draft some support from upbeat Amazon export figures from India, a large takeover in the energy sector and because of further upbeat news from the vaccine front. A very critical uptrend channel support line that encompasses the entire March to present recovery move sits below the market Monday at 3151.90 and the inability to hold that level might suggest the market is temporarily giving in to a 2nd wave of economic fear from the virus. The July 14th Commitments of Traders report showed E-Mini S&P Non-Commercial & Non-Reportable traders were net short 128,750 contracts after increasing their already short position by 5,400 contracts.

The NASDAQ is likely undermined somewhat by Disney’s move to cut spending on Facebook and from a Twitter move to disable a Trump tweet as that could rekindle regulatory threats. While the NASDAQ appears to have fairly-genuine support at 10,500, the index retains the largest net spec and fund long of the actively traded stock index futures contracts and therefore it looks to be vulnerable to stop loss selling. The Commitments of Traders report for the week ending July 14th showed Nasdaq Mini Non-Commercial & Non-Reportable traders net sold 9,668 contracts and are now net long 34,438 contracts.

GOLD, SILVER & PLATINUM:

The gold market starts the new trading week with an early reversal of a recent pattern of lower highs from last week. With the dollar in the early going falling within a few ticks of a 40 day low, it is possible gold and silver could see noted currency related buying early this week. With the markets seeing improved odds of an agreement on an EU stimulus package of 2 trillion euros and chatter in Washington beginning to materialize on another package, equities and metals should be cheered. Investment interest in gold and silver also continued through the end of last week with gold ETF’s adding to their holdings for the 16th straight day and silver ETF’s pulling in a very significant 5.54 million ounces which brings this year’s net silver purchases up to 221.6 million ounces.

In a change of pace, the palladium market continues to forge the most impressive action within the PGM complex. While it might be premature to suggest the inflow to platinum and palladium ETF’s last Friday was significant, we are now watching closely for spillover ETF buying from investment headline coverage of gold and silver ETF inflows over the past 6 months. So far, both platinum and palladium ETF holdings year to date are down, with total palladium ETF holdings sitting at a mere 465,894 ounces and platinum ETF holdings at a more substantial 3.2 million ounces. In palladium, with the strong finish last week and a minuscule net spec and fund long positioning in the COT report, palladium should have plenty of technical buying capacity in reserve. The Commitments of Traders report for the week ending July 14th showed Palladium Managed Money traders net bought 252 contracts and are now net long 1,769 contracts. Non-Commercial & Non-Reportable traders were net long only 2,326 contracts after increasing their already long position by 298 contracts.

The platinum market remains the weakest component of the precious metals complex with the market in the month of July mostly tracking sideways in the face of upside breakouts in gold, silver and perhaps soon in palladium. However, we are unconvinced that platinum will fully join the bull track as its net spec and fund long positioning is moderately large relative to the amount of daily trading volume in the market. The Commitments of Traders report for the week ending July 14th showed Platinum Managed Money traders are net long 8,193 contracts after net selling 856 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 435 contracts to a net long 20,580 contracts.

COPPER:

While the copper market has managed to charge through a consistent barrage of bearish fundamental developments since the March recovery began, fundamentals now seem to project a continuation of the correction that started last week. In our opinion, the most significant negative facing the copper market is news that Chinese exchange warehouse stocks have virtually exploded upward over the last 3 weeks suggesting that some type of downshift in Chinese demand might have taken place. In fact, Shanghai copper stocks last week increased for the 3rd straight week (all three with 5-digit gains), and some in the trade are suggesting China is indeed in the middle of a slack seasonal demand period. Additionally, it is noted that many Chilean copper mines have managed to increase production after adjusting for coronavirus safety measures and that negative supply side news is accentuated by the fact that Chinese June copper output increased by 3.5% on a year-over-year basis.

ENERGY COMPLEX:

While we continue to be impressed with the crude oil market’s capacity to hold up around the $40.00 level in the face of what appears to be a moderating of OPEC plus production restraint, rising threats of softer demand from the unending surge in US infections and reports that Chinese oil storage is at record levels we still can’t rule out the biggest correction since the end of June. The end of June washout was only $4.00 the correction in the beginning of June was more significant at $5.89, and given OPEC news, sagging Chinese demand, overbought spec positioning and virus counts we tend to favor the chances of a larger washout than was seen at the end of June.

Some of the setback in Chinese demand could be the result of refinery rate reductions due to flooding but it is also possible that China purchases have been too ambitious. Fortunately, for the bull camp a recent private survey showed global floating storage to have declined last week but overall storage levels remain 240% above year ago levels! Additionally, Singapore fuel floating stockpiles remain 18% above the 5-year average and there are reports this morning that cooler temperatures in China are muting their buying interest for utility supply. While the net spec and fund long position in crude oil has been moderated with the last 1 1/2 month sideways chop, the net long is holding 176,000 contracts above the 2020 low spec long.

Unlike the crude oil market, the gasoline charts broke down last week and that looks to propagate additional selling this week. In our opinion, the gasoline market is under pressure because of the failure to see gasoline demand in the US recover at the pace seen in many US scheduled economic data points. In reality, the failure to see a lot of workers return to the physical workplace means that overall US gasoline consumption is destined to remain well below year-ago levels. Certainly, the US gasoline stocks surplus to year ago levels has narrowed (over the last 3 weeks), but weekly absolute gas stock levels remain historically burdensome.

BEANS:

There seems to be enough rain in the short-term forecast to turn the market lower early this week. November Soybeans have held the 50% retracement of the April 21-July 6 rally, as improving demand from China and uncertainty on early-August weather have lent support. The market put in the low for the week on Monday last week and put in the high on Friday and managed to close 4 1/4 cents higher for the week last week. November soybeans closed moderately higher on the session Friday and the market was up for a fourth session in a row. The buying pushed the market up to the highest level since July 10.

December soybean oil closed sharply higher Friday as the buying pushed the market up to the highest level since March 5. The next key resistance is at the 50% mark of the January to March break which comes in at 31.15. Palm oil climbed to a five-month high on concern that heavy rain in top producers Indonesia and Malaysia will curb output. Prolonged heavy rain can cause floods and disrupt the harvest and transport of palm fruits. Malaysia’s palm oil production for 2020 won’t exceed 20 million tonnes as yields are hampered by labor shortages, extreme weather, and lack of fertilizer last year, according to the chief executive of the country’s palm oil association.

CORN:

Parts of Iowa, Indiana and Ohio are still in need of rain and have received very little in the past seven days. However, the five day forecast shows 0.75 to 1.50 inches of rain for much of Iowa, Nebraska, Illinois Indiana and even more for Missouri and Minnesota. The short-term rain forecast will be important to verify as the 6 to 10 day forecast shows lots of heat centered in northern Iowa and southern Minnesota, with rain only hitting the northern Midwest. The 8 to 14 day model shows warm but wet conditions for the Midwest. If the short-term forecast verifies, the crop still has fairly high yield potential. December corn closed slightly higher on the session Friday, and the buying pushed the market up to the highest level since July 13th.

WHEAT:

The wheat markets saw an impressive rally off of the late June lows, but the market does not seem to have the supply fundamentals for an extended rally higher. In fact, managed money fund traders reduced their net short position by a whopping 25,000 contracts in just one week which suggests that short-covering was a key factor for the recent rally. There are some minor issues for crops in Europe, Black Sea region and some concerns for Argentina looking forward. However, a major production issue does not look to be in the cards, and global ending stocks will be revised slightly lower from a record high level. September wheat experienced choppy and two-sided trade with a nearly 10 cent range and closed Friday about unchanged on the day but closed 3/4 of a cent higher for the week. The market is attempting to hold onto part of the strong gains from Wednesday.

HOGS:

While the rally in pork values is impressive, it will be difficult to absorb the huge increases in pork supply expected over the near term. The market is a bit overbought and vulnerable to a pullback as futures hold a premium to the cash market. August hogs closed moderately lower on the session Friday but the market managed to gain 275 points for the week. The market is attempting to consolidate the very strong gains from Thursday as traders clearly believe the cash market will trade higher in the weeks ahead. The premium structure is hard to rationalize with pork production coming in up 12.1% this past week and up 9.7% from a year ago the previous week. However, pork cut-out values continue to come in with friendly surprises as demand for US hams must be strong. Ham prices were up again Friday to near $67.76 from $58.20 one week ago.

CATTLE:

The cattle market is attempting to hold a stiff premium to the cash market on hopes that beef prices begin to advance. Cash live cattle traded in light volume on Friday, mostly steady with earlier in the week. The 5-area, 5 day average was $96.11 as of Friday afternoon, up from $95.74 the previous week. This leaves October cattle holding a premium of $10.76 to the cash market as compared with the 5-year average basis showing a discount of $3.64 to the cash. Traders seem hopeful that supplies will taper off along with demand which would be normal for this time of the year, but this is not a normal year with third quarter meat production expected to recover after losses from the second quarter.

COCOA:

Cocoa’s whipsaw price action at the end of last week is further evidence that demand concerns will weigh on the market until there is “light at the end of the tunnel” in dealing with the coronavirus pandemic. Cocoa was able to avoid shockingly bad demand-side results last week, however, and that may help to start a longer-term move towards the upside. The 700-point pullback in cocoa prices from late February through early July was fueled by expectations of a heavy decline in global demand. Going into last week, there were expectations by many that the second quarter grindings could be extremely negative, with much of the world still in a pandemic lockdown mode during that time.

COFFEE:

Since late March, coffee prices have faced headwinds from global demand concerns and from a likely record-high Brazilian 2020/21 crop. While both of those issues will continue to apply pressure to the market, coffee is showing additional signs that a longer-term low was put in during June. For the week, September coffee finished with a gain of 4.90 cents, which was a positive weekly reversal and a third positive weekly result over the past 4 weeks. The Brazilian harvest remains well behind last year’s pace, and that has slowed the flow of beans to their port facilities. In addition, forecasts for key Brazilian Arabica growing areas have a significant drop in daily low temperatures this week which also gave a boost to coffee prices. While most areas are not expected to reach freezing temperatures, Brazil’s “frost window” will continue to the end of July as this year’s harvest delays of what is expected to be a record high crop have left a higher than average number of beans on trees that would be normally be harvested at this point of the season.

COTTON:

The West Texas region does not seem to have enough rain in the short-term model, and this should help offset the negative demand tilt. The market had two major concerns last week, one being the threat to US exports by the ongoing dispute between the US and China, the other being less damage to the Texas crop than was expected from the recent dry weather. China on Thursday stated it would stick to the Phase 1 trade deal and respond to the “bullying” tactics from Washington separately, which seemed to suggest US cotton exports were not under threat. But on Friday there were reports that the White House was considering banning all travel to the US by all members of the Chinese Communist party, and this increased trader concerns again.

SUGAR:

Unless key outside markets regain their strength, sugar may turn back to the downside. October sugar kept within a tight trading range, but could not sustain upside momentum as it finished Friday’s trading session with a modest loss. For the week, October sugar finished with a loss of 3 ticks that was a third negative weekly result over the past 4 weeks. A nearly 1% decline in the Brazilian currency weighed on sugar prices as a weaker currency encourages Brazil’s Center-South mills to produce more sugar (for export and paid for in foreign currencies) instead of ethanol (which is mostly for their domestic market and paid for with Reals). Over the second quarter, Center-South mills devoted over 46% of their crushing to sugar production which compares to less than 35% over the same period last year. Energy prices had a downbeat finish to the week that also weighed on the sugar market as that will weaken Brazilian near-term domestic ethanol prospects.