Surprisingly, volatility in the treasury markets moderated last Friday despite the beginning of congressional chatter on the looming debt ceiling deadline this week. However, the markets have generally embraced a hawkish take away from last week’s Fed news and the dismal 30-year bond auction continues to weigh heavily on market sentiment. This week US scheduled data is likely to be ignored with the focus turning toward Washington. The muted reaction to the Moody’s Downgrade of its outlook of the US credit rating from stable to negative could be partially the result of the distinction between a downgrade of their outlook as opposed to an actual reduction of the “rating”. However, traders should not discount the development as the warning could become a cut if the debt ceiling problem is kicked down the road, or the debt ceiling is raised or if Congress displays the usual unwillingness to govern with aggressive partisan fighting.
While some may interpret the action in the dollar last Friday as nondescript, the index did post a higher high and higher low suggesting soft US data last week has been discounted and the trade has settled on a slightly hawkish interpretation of last week’s Fed news. The focus of all financial markets will likely shift to November 17th (the continuing resolution deadline on the debt ceiling) with the dollar potentially facing a junction.
All things considered the range in the euro this week could be narrow again with action likely to expand dramatically later this week because of US jobs data on Thursday and US political maneuvering on the US debt ceiling which could become all encompassing. Obviously, the pound is oversold and deserving of the noted bounce this morning but a decline in the UK house price index should add a measure of resistance over the currency. While the Canadian dollar is significantly oversold from a technical perspective, the currency lacks classic bullish fundamental arguments to suggest last week’s spike low was a solid low.
The stock market managed to reject a five-day low probe last Friday, but investor opinions on the current policy bias at the Federal Reserve are mixed and the “bad US data is good for equities” might lose its bullish capacity. In other words, if the Fed has a hawkish bias, investors will interpret soft data as a double negative. From a technical perspective, the bear camp can point out the lower high and lower low trade last Friday. Looking forward to the next four trading sessions look to offer significant financial market uncertainty, and investors typically do not like uncertainty. Global equity markets at the start of this week were mostly higher with weakness seen in some Pacific Rim markets. The US markets have benefited from news of a possible sale of 90 Boeing 777X planes to Emirates and from signs that China might be set to end of the ban on Chinese purchases of Boeing 737Max planes.
After the very impressive downside breakout reversal and strong close rally in the Nasdaq last Friday and prices sitting just below Friday’s 40-day high, the charts favor the bull camp. In retrospect, news last week that Nvidia produced three new chips specifically for China is positive for the company and provides fundamental support for the NASDAQ.
GOLD, SILVER & PLATINUM:
Unfortunately for the bull camp, the gold trade continues to embrace the bearish bias from last week with expectations the dollar will continue to climb, and the charts remain bearish. With the last day of Diwali on Tuesday, the opportunity for Indian festival demand is past. While there will be an avalanche of global inflation readings this week, we do not see that information playing a determining role for gold and silver prices, and most readings expected to show only incremental changes it is unlikely there will be a definitive opinion on the direction of upcoming central bank policy changes.
While gold and silver have not shown bullish sensitivity to the US debt ceiling and credit rating news in the recent past, that could change later this week given the outlook downgrade by Moody’s at the end of last week. However, the global tightening bias has been tempered because of recent data potentially shifting the focus of gold and silver to the US debt ceiling situation. On the other hand, we doubt anything definitive will be achieved until the waning hours before the shutdown this weekend, with Congress typically making it appear they have saved the country at the last minute.
Even though weekly Shanghai copper warehouse stocks posted a moderate decline late last week, equities showing periodic strength and interest rates at times ticking lower, the copper market ranged down and violated a series of key charts support levels at the end of last week which extends last week’s pattern of damaged charts into a new week. In retrospect, economic news from China continues to be very discouraging, and this week could present a major macro-economic smack down of physical commodities from fear of a US government shutdown or worse a global financial crisis as US debt concerns flare.
Despite a lack of definitive risk on mentality flowing from global equity market action overnight December crude oil has tracked higher early this week with market attempting to respect the 200-day moving average at $76.70. Supporting prices internally is news that weekly oil in global floating storage declined by 26% last week, with storage seemingly falling in all key regions measured. Asia-Pacific supply was down sharply with West African storage down 35%. However, on the demand side of the equation, the trade generally fears softening US and Chinese demand which coincides with recent soft data from both countries.
Over the weekend, there were signs of softening Asian prices from softer demand, but that influence could be offset by WTI backwardation shifting to contango at the end of last week.
The gasoline market appears to have found some value at last week’s double low around $2.1220 with open interest rising during that bottoming process. While the gasoline market is not as directly tied to the Middle East situation, gasoline prices last Friday closed right at the levels registered at the start of the fighting. Like the gasoline market, the diesel market also forged a double low last week at $2.6960 and showed respect for the even number $2.70 level.
The latest USDA supply and demand report featured a loosening of the balance sheet as yields were raised.3 bushels per acre and carryout was higher than expected, which turned the tide to the bear camp. The small yield increase added 25 million bushels to the carryout with other balance sheet categories left unchanged. State yields were increased in 14 states and decreased in 2 states. The report put the focus back on adequate supplies and the bearish price reaction following the report probably was exacerbated by chances of rain in the center and north dry areas of Brazil beginning late next weekend, 9-10 days out.
A modestly bearish USDA supply/demand report sent December prices to a new low for the year and that is keeping the bear camp in control. The surprising 1.9 bushels per acre increase in yield caught traders off-guard, as all but three states saw yield increases. However, demand categories increased to offset some of the larger production. Since corn prices had already been languishing around the year’s lows, we wouldn’t expect a washout lower from here.
The USDA supply and demand report made a few minor changes which resulted in a small carryout increase of 14 million bushels, resulting in ending stocks coming in above expectations and sending futures prices lower. SRW wheat production was raised 11 million bushels in HRW wheat production was essentially unchanged. The stocks-use ratio increased to 36.87%, compared to last month’s report at 36.04%. World ending stocks did not feature any major surprises and there wasn’t much in the report for the bull trader. Luckily for the bulls, even with the post-report price break, the trend of 6 of the last 7 trading days having a higher daily low remained intact. Wednesday’s huge trading volume, the highest since March 2022, is significant and we think support will be evident on breaks.
February hogs spent last week consolidating their gains off the October contract lows, but the fundamentals appear to have shifted in a positive direction. The CME lean hog index turned higher last week from its lowest level since May, which makes the cash market situation look less dismal. As of November 8, the Index was priced at 76.87, up from 76.69 the previous session and 76.84 the previous week. The USDA estimated hog slaughter came in at 452,000 head Friday and 191,000 head for Saturday. This brought the total for last week to 2.576 million head, down from 2.671 million the previous week but up from 2.501 million a year ago. The USDA pork cutout released after the close Friday came in at $87.72, up $1.88 from Thursday and up from $86.03 the previous week. USDA reports last week were supportive as well.
February cattle traded in a narrow range last Friday at the bottom of Thursday big range down, and while this may not be indicating a clear rejection of last week’s lows, it does suggest a possible near-term low after declining 6% in one week. The USDA estimated cattle slaughter came in at 114,000 head Friday and 11,000 head for Saturday. This brought the total for last week to 618,000 head, down from 632,000 the previous week and 670,000 a year ago. The USDA boxed beef cutout was up 51 cents at mid-session Friday and closed $1.04 higher at $300.46. This was down from $302.34 the previous week.
The cocoa market has received support from a bullish supply outlook and an improving demand outlook that have helped to maintain a 13 1/2-month uptrend. While this projects even higher price levels over the rest of this year, it may not take much in the way of bearish news to trigger a sizable pullback in the cocoa market. Cocoa prices reached the 4000 level for the first time since 1978 as December cocoa went on to post a sizable gain for Friday’s trading session. For the week, December cocoa finished with a gain of 93 points (up 2.3%) and a sixth positive weekly result in a row.
While coffee’s November rally appears to have run out of upside momentum, the market will start this week well above its 3 major moving averages. If global risk sentiment continues to improve, coffee prices should find their footing early this week. December coffee fell back on the defensive before it could retest Thursday’s 4 1/2 month high as it finished Friday’s trading session with a sizable loss. For the week, however, December coffee finished with a gain of 3.60 cents (up 2.1%) and a fourth positive weekly result over the past five weeks.
With the USDA supply demand report behind them, cotton traders may have taken some interest in the recent spike in US export sales, particularly from China. Last week’s export sales report showed cotton sales for the week ending November 2 at 439,698 bales. This was down from 544,953 the previous week but it was the second highest since June 1. China was the largest buyer at 259,963 bales, and it was their second strongest week since June.
The sugar market continues to have a bullish global supply outlook due to significant production issues in India and Thailand. The Brazil supply situation remains bearish, however, and a reminder of that put the sugar market back on the defensive going into the weekend. March sugar was unable to shake off early pressure as it went on to finish Friday’s trading with a heavy loss. For the week, March sugar finished with a loss of 0.48 cent (down 1.7%) which broke a 2-week winning streak and was a negative weekly key reversal from last Tuesday’s 12-year high.
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