Following disappointing Chinese GDP and industrial production readings, last Friday’s European data included an in-line result for Italian CPI that remained at a multi-decade high. June US retail sales came in slightly above trade forecasts, but were not the strong data “beat” that Fed officials were looking for to justify a 100 basis point Fed rate hike later this month. Although the latest Empire State survey and a private survey of consumer sentiment came in higher than expected, both industrial production and capacity utilization were lower than trade forecasts. Treasuries were able to build on early strength and finished last Friday’s trading session with sizable gains.
The Dollar continued to be pressured late last week by the slightest of shifts in Fed rhetoric as it followed through on Thursday’s pullback by finishing Friday’s trading session with a sizable decline. Comments by the Fed’s Waller and Bullard raised the bar for today’s US retail sales reading which beat trade forecasts, but was not enough to reaffirm expectations for a 100 basis point Fed rate hike later this month. This provided across the board support for major currencies, with the Euro finding an additional boost from a multi-decade high Italian CPI reading.
About the most positive thing we can say about the euro is it deserves technical short covering after the significant declines of the past 30 days. Like other non-dollar currencies, the Yen has a reprieve from the selling because of back and fill action in the dollar. Like the Swiss franc, the Pound has apparently made the most out of the corrective setback in the dollar.
Global markets were able to regain a positive tone going into the weekend after an eventful trading session last Friday. Disappointing earnings from Wells Fargo and BlackRock weighed on sentiment early in the day. Although there was a mixed set of US economic data, retail sales did not have a much better than expected result, which diminished the case for a 1.00% Fed rate hike later this month. The Dollar extended its pullback, which benefited US multinational firms. US equity markets continued to build on early strength as they finished last Friday with sizable gains.
After maintaining the most constructive charts through the early July two-sided chop, the September Dow Jones futures forged 13-day highs and have regained a potential psychological pivot point at 31,500.
While the NASDAQ has not forged as impressive of a range up move as other measures of the market, a 3rd straight day of higher closes could be in order today, potentially resulting in an upside breakout above key resistance at 12,211.
GOLD, SILVER & PLATINUM:
If metal market views begin to think rapidly rising interest rates might not deter inflation, that could begin to discourage aggressive and very confident selling interest in gold and silver. Fortunately for the bull camp, hawkish market sentiment from the US central bank will likely moderate this week as the US Fed entered its blackout period over the weekend ahead of the July 26th-27th meeting. At least to start this week, gold and silver benefited from further weakness in the dollar which at times had reached 5-day lows! On the other hand, hawkish foreign central bank dialogue and continued private analyst hawkish dialogue will keep a lid on gold and silver prices.
Despite the initial lift from positive outside market forces, the palladium market maintains an overall bearish technical and fundamental condition. In fact, investors remain negative toward both palladium and platinum with PGM ETF holdings last week posting 44,289 ounces moving out of platinum ETFS putting the year-to-date contraction in holdings at 9.4%. Similarly, palladium ETF holdings last week declined by 7,489 ounces and are now 12% lower on the year. The palladium market has not had specific fundamental developments justifying the gyrations in prices ($400) over the last 30 days.
With the copper market becoming significantly short-term and intermediately oversold from technical perspectives last week, and most fundamentals remaining distinctly bearish, rallies are likely to be temporary. In fact, a pattern of daily increases in Chinese infection counts increases the prospect of lockdowns in China and fresh economic headwind fears. However, the market early this week caught distinct lift from positive global market psychology and from reports the Chinese central bank will continue to provide supportive monetary policy.
While last week’s spike below $90.00 in September crude oil could represent a key bottom, the outlook for demand from economic data and equity market action will likely drive prices sharply in both directions this week. In the short term, the daily direction of crude oil prices is likely to take significant guidance from the equity markets as the ebb and flow of demand destruction from equity market signals has been the dominating force since the June highs in crude oil. Therefore, initial upside action (a 4-day high) is at least partially the result of higher equities but also because of a decline in floating global crude oil storage of 6.3% on a week over week basis.
While the gasoline market might find residual support from the Saudi comments that high global energy prices in the US are the result of a shortage of refinery capacity/activity, the market will face ongoing demand destruction fear selling. Unfortunately for the bull camp, demand concern was given traction by recent high-frequency road use declines in China but that negative demand news was significantly offset by reports that Chinese gasoline shipments over the first 6 months of this year declined by 42%. This week’s COT report put the net spec and fund long in gasoline just above the lowest net spec and fund long since 2017. However, we see cyclical and seasonal demand softening ahead and nearby gasoline futures prices below $3.00 without a dramatic sustainable risk on environment.
In the last seven days, dry spots have developed with very little rain in southern Illinois and Indiana, much of the Western two thirds of Iowa, southern Minnesota, parts of North and South Dakota and a few spots in Nebraska. The five day forecast shows very little or no rain much of the Midwest. The 6-10 day forecast models show above to much above normal temperatures for most of the Corn Belt with below normal precipitation. The 8-14 day models are similar with the heat most intense in Nebraska, western Iowa, Missouri and Kansas. Still well above normal temperatures are expected for all of the Midwest.
With a threatening weather forecast, buyers should be active. The outlook for hot and dry weather in the Western Corn Belt clashed against good moisture expected over this past weekend for the Eastern Corn Belt. Traders said the heat in the EU provided more support than the US weather as traders see pollination yield damage in Europe with temperatures in the triple digits. Ethanol demand remains strong, but Brazil and Argentina corn prices are cheaper than the US at present. The USDA confirmed private sales of 133,000 tonnes of US corn to China for the new crop season. The French heatwave is expected to intensify from Sunday, according to Meteo France and temperatures could exceed 104 degrees in some areas. In the US, parts of southern Minnesota, Iowa, South Dakota and Nebraska have missed out on rain in the last week and these areas should see much above normal temperatures and below normal precipitation all the way out to July 30th. The crop is behind, which leaves it vulnerable to hot and dry weather.
September wheat close moderately lower on the session last Friday and the selling drove the market down to the lowest level since February 8. Egypt is tendering for wheat with a deadline for offers on July 19th. Traders are hopeful that Ukraine may eventually be able to export grain out of the Black Sea, but details are still uncertain and the market is absorbing harvest in the US and Europe. The market is extremely oversold technically, but there is still no sign of a short-term low. A strong US dollar has discouraged buyers even after the highest weekly sales total in two years last week. The French soft-wheat harvest has reached the halfway mark, holding well ahead of last year’s pace. Warm (up to 104 degrees Fahrenheit) and dry conditions should favor winter-crop harvesting this week.
A continued strong advance in pork product prices to a 13 month high has provided underlying support. Pork production for the third quarter is expected to remain relatively tight, and heat across the Midwest could push weights lower and production a bit lower. The CME Lean Hog Index as of July 13 was 113.39 up from 112.82 the previous session and 110.16 the previous week. The USDA pork cutout, released after the close Friday, came in at $120.34, up from $116.46 on Thursday and $112.69 the previous week. This was the highest the cutout had been since August 19, 2021.
The estimated average dressed cattle weight last week was 809 pounds, down from 810 the previous week and down from 817 a year ago. The 5-year average weight for that week is 814.6 pounds. Weights could continue to drop over the near term with temperatures in the plains from the mid-90s to the mid-100’s over the next two weeks. The highs Monday for Lubbock Texas are expected to reach 105 degrees, with temperature highs expected from 98 to 108 through Monday, August 1. Traders remain concerned with current market-ready supply which seems to be higher than a year ago, and traders are also concerned with sluggish demand.
Cocoa’s abrupt turnaround late last week was fueled in large part by a rebound in global risk sentiment and renewed strength in key outside markets. Until there are more signs that global demand is on the mend, however, cocoa remains vulnerable to further downside price action this week. September cocoa found immediate support and continued to build on early strength as it finished Friday’s trading session with a sizable gain. For the week, September cocoa finished with a gain of 3 points (up 0.1%) which was a second positive weekly result in a row, as well as a positive weekly key reversal from last Thursday’s contract low.
Coffee was able to put some brakes on its July selloff, but remains more than 30.00 cents below its June month-end price coming into this week’s action. September coffee was able to rebound from a new 9 1/2 month low to finish Friday’s trading session with a sizable gain and a positive daily reversal. For the week, however, September coffee finished with a sizable loss of 20.65 cents (down 9.4%) which was a fifth negative weekly result over the past 6 weeks.
A sweeping reversal in December cotton last Friday offers the first indication that the steep selloff from the May high may have finally concluded. The dollar was weaker on Friday, and crude oil and the stock market were higher, all of which is supportive to cotton prices. Despite the outside reversal, some in the trade were dismissing Friday’s rally as being merely short covering. Better than expected US retail sales data helped alleviate nagging concerns that a recession would hurt demand. The latest 1-5-day forecast calls for little rain in Texas but ample amounts in the Delta and Southeastern US.
After falling to its lowest price level in four months on July 5, October sugar rallied to a five-week high on Friday. This recovery occurred despite significant weakness in crude oil prices and the Brazilian currency, and that should bode well for sugar prices going forward. October sugar continued to build on early strength as it finished Friday’s trading with a moderate gain. For the week, October sugar finished with a gain of 23 ticks (up 1.2%) and a second positive weekly result in a row.
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