Not surprisingly, the Treasury markets spiked higher last Friday after a serious miss on the magnitude of the April payroll gain. However, the bond and note markets failed to hold the gains and at times after the jobs report prices were trading in “negative territory”. As indicated in other financial market coverage, the very disappointing April jobs figures have probably pushed back the Fed’s timing on tapering. Obviously, the Treasury bond market deserved its sharp spike up rally to the highest price since the beginning of March in the wake of a very significant “miss” on the nonfarm payroll reading for April. For many traders and analysts, that means the Fed will be on hold for longer. However, there are signs that other major global central bankers are poised to begin “tapering” and that could eventually begin the process of rotation away from the US.
We were somewhat surprised in the dollar’s decline last Friday, as disappointing US jobs figures (some sources indicate the miss of expectations was the largest in decades) could have lifted the dollar sharply off renewed economic uncertainty. On the other hand, US interest rates fell and with the disappointing jobs data that probably extends the period of low rates in the US further into the future and that in turn could make other sovereign instruments more attractive as the pandemic winds down and economies recover. Not surprisingly, the dollar has ranged down again early this week and would appear to be headed below 90.00.
While the euro has not forged significant gains early this week, the dollar is clearly under noted pressure and the recovery currencies (Euro, Swiss franc, Canadian dollar) should be poised to take further advantage of that weakness. The trade saw a positive Sentix investor confidence reading for May from the Euro zone as that index leapt from 13.1 to 21. While the market is short-term overbought technically the currency would appear to be poised to regain 1.22. Euro positioning in the Commitments of Traders for the week ending May 4th showed Non-Commercial & Non-Reportable traders are net long 139,071 contracts after net buying 3,807 contracts.
Clearly, the significantly weaker than expected nonfarm payroll reading last Friday sparked buying of equities under the assumption that US interest rates would be held down for longer. In fact, seeing the nonfarm payroll gain come in at one quarter of the expectations significantly deflates recent fears that the Fed would begin to taper its asset purchases. In conclusion, favorable conditions look to extend with investors willing to pay up. Global equity markets at the start of this week were evenly mixed without geographic pattern. Overnight economic news of importance included a softer than expected Australian retail sales gain of 1.3% relative to expectations of 1.4%. It appears as if the markets have found a sweet spot with the US economy growing but not growing enough to quickly return jobs lost during the lock down.
Like the S&P, the Dow futures continue to lead the markets higher with another new all-time high early today. However, the market has posted a massive 5-day rally of 1200 points and has seen open interest jump sharply. Therefore, the market appears to have momentum and reserve speculative buying capacity. The May 4th Commitments of Traders report showed Dow Jones $5 Non-Commercial & Non-Reportable traders net bought 298 contracts and are now net long 897 contracts.
GOLD, SILVER & PLATINUM:
The question for the gold and silver trade this week is which markets will show up as both markets have had a lot of starts and stops and have had difficulty trending. Certainly, seeing the dramatic downside thrust in the dollar and a cyber-attack on a key US pipeline provides a bullish fundamental foundation to start, which is needed to underpin the markets after large-concentrated gains last Thursday and Friday. On the other hand, seeing gold and silver rally following a significant downside “miss” on the monthly US nonfarm payroll report suggests that both markets saw buying off a likely extension of very low US interest rates. In fact, with the US likely to hold rates down and continue to provide bond buying at-the-same time that other central banks are preparing to “taper” that could result in a significant narrowing of the US interest rate premium over other sovereign yields. In addition to an extension of extremely low interest rates, the threat of inflation is surging in a list of exchange traded commodities at-the-same time that non-traded industrial input prices are spiking.
Strength in iron ore (a record high) and indications that Chinese smelters will buy less copper concentrate (pollution control buy refined copper outside the country) provides the market with bullish buzz to start the new trading week. With a massive range up thrust into new all-time high ground again and Goldman projecting a further rise of 10% in the coming 12 months, the copper market appears to be a primary inflation tool. In fact, with signs of a strong Chinese economy last week and tightening LME copper stocks that leaves both supply and demand in favor of the bull camp. However, the bull camp should be careful pressing prices as lead and zinc (also base metals) do not appear to be taking part in the aggressive rallies in copper, lumber, iron ore, and steel, and that casts some doubt on views that copper is operating in a different economy.
With the gasoline market flaring aggressively on the upside and crude oil forging minimal gains, it-is-clear that the focus of the energy complex is the Colonial product pipeline shutdown. Apparently, analyst suggest that widespread fuel shortages in the US could be seen if the pipeline remains shut for 4 to 5 days. Another supportive development for US crude is a report that significant amounts of crude is moving towards Europe with the recent slide in the dollar potentially giving US exporters a slight price edge. However, India appears to be moving toward a nationwide lockdown and that could make the demand loss from India even more severe than was expected. Fortunately for the bull camp, the US crude oil supply deficit to year ago figures leaves supply generally tight, especially considering that recent US export data has been very strong.
Natural Gas positioning in the Commitments of Traders for the week ending May 4th showed Managed Money traders added 16,480 contracts to their already long position and are now net long 50,584. Non-Commercial & Non-Reportable traders were net short 30,060 contracts after decreasing their short position by 5,628 contracts. We favor the bear view to start the trading week as natural gas has once again faltered at $3.00 prices and has forged 8 days of consolidation just under that level. Furthermore, the net spec and fund short in natural gas has been brought down significantly thereby reducing the potential for stop loss buying. We would also note that the natural gas market lacks a definitive bullish theme capable of bringing prices above what has been extremely thick resistance ($3.00) since last September.
July soybeans closed sharply higher on the session Friday and into new contract highs, reaching a peak of 1599 1/2 and trading up to the highest level since October 2012. November soybeans also closed sharply higher on the day and posted new contract highs for the second session in a row. With the continued strong advance in corn, buyers turned active for meal and July meal pushed up to the highest level since January 20. Palm oil stockpiles in Malaysia rose 7.1% to 1.55 million tonnes in April from a month earlier. Weather and profitability are the key factors that affect planting decisions between late winter up until the crops are in the ground. The largest increase in soybean plantings was in 2014 with a gain of 3.346 million acres. May 2014 Soybeans rallied from $12.50 in early February to $15.32 by the end of April, significantly increasing the incentive to plant beans.
The corn market closed sharply higher on the session Friday and closed higher each day last this week to reach the highest level since March of 2013. Dryness in Brazil is bringing the crop size down every day that it does not rain. There is talk that the Brazil crop could fall to as low as 85 million tonnes, or down 24 million from the last USDA estimate, if there is no rain for the rest of the month. This seems unlikely but Brazil has entered the dry season and it cannot be ruled out.
July wheat closed moderately higher on the session Friday, but the rally fell short of the April 27 peak. For the week, July wheat gained 27 cents. Continued strong gains for the corn market should help increase wheat feeding and July Kansas City wheat posted a new contract high. European wheat futures traded higher last week with the May contract at the highest front month price since December 2012 at its peak Friday, but the market closed down 3.8% on the session. Demand factors remain mostly positive while supply factors continue to carry a slightly negative tilt. French wheat conditions declined for the fourth week in a row but remain in pretty good shape.
June hogs closed sharply lower on the session Friday and August hogs also closed sharply lower on the day after posting a contract high and the lower close is a key reversal and suggests a significant top may be in place. Futures were under pressure in spite of a collapse in the US dollar and strength in most other commodity markets. Ideas that China import demand for meat and for pork will taper off as the year progresses has helped to pressure. Hog futures in China fell nearly 7% today which is the biggest decline since the contract launched in January. Hog prices have fallen sharply since late April and hit 20.29 yuan per kilogram on Monday, the lowest level since August 2019 as large-volume of heavy pigs continued to go to slaughter. China’s national average spot pig price as of May 10 was down 4.83% from the previous day. For the month, prices are down 9.66% and down 43.5% year to date.
June cattle closed higher on the session last Friday but well off of the highs. The buying pushed the market up to the highest level since April 27. The red-hot beef market continues to provide support and talk that cash cattle prices have stabilized and have the potential to trade higher in the next few weeks due to massive packer profit margins has helped to support. The USDA boxed beef cutout was down 41 cents at mid-session Friday and closed 49 cents lower at $305.88. This was up from $296.50 the previous week. Cash live cattle trade was quiet on Friday, with 734 head reported in Kansas at 119 versus an average of 118.47 last week. As of Friday afternoon, the 5-day, 5-area weighted average price was 118.26, down from 119.01 the previous week. Lower trades in Nebraska last week pulled the average down.
While many commodities have had a strong start to 2021, the cocoa market has been a notable laggard. There have been signs that cocoa demand is starting to rebound from its pandemic low. As a result, pent-up chocolate demand could set the 2021/22 season up with a more balanced supply/demand outlook. July cocoa shook off early pressure and extended last week’s recovery move by reaching a new 1-week high before finishing Friday’s trading session with a sizable gain. For the week, July cocoa finished with a gain of 81 points (up 3.4%) which broke a 2-week losing streak and was a positive weekly reversal from Tuesday’s 6-month low.
After a nearly 14 cent rally in just 2 sessions, coffee was unable to sustain upside momentum. Given the market’s price action late in the day, however, near-term pullbacks should continue to present fresh opportunities to approach the long side of the market. July coffee was pressured early in the day and dropped sharply again at midsession, but then rallied late in the day to finish Friday’s trading session with a relatively moderate loss. For the week, however, July coffee finished with a gain of 11.45 cents (up 8.1%) and a fifth positive weekly result in a row.
December cotton closed moderately higher last Friday, but July closed lower. Both markets briefly traded up through last Thursday’s highs but rejected them. The dollar broke sharply, with the June Dollar Index falling below last week’s low to its lowest level since February 26, which should be supportive to cotton. The S&P 500 went to new all-time highs, which is supportive to the cotton market as well. In addition, lumber and copper pushed to new all-time highs as industrial commodities continue to be well supported from global money managers. There is also an inflationary tilt for most agricultural markets. The 1-5-day forecast calls for some light rainfall in west Texas with heavier amounts in the eastern part of the state.
Sugar lost upside momentum late last week as it was impacted by the ebb and flow of key outside markets. Positive global risk sentiment and a bullish supply outlook continue to underpin the market, as sugar looks to be heading for new high ground over the next few weeks. July sugar saw choppy action as it was unable to sustain upside momentum before finishing Friday’s trading session with a modest loss. For the week, however, July sugar finished with a gain of 51 ticks (up 3.0%) and a fifth positive weekly result in a row.
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