Written Commentary
BONDS:
Like several other financial markets, treasury bonds last Friday displayed a lack of direction with the primary Fed inflation tool (PCE) posting a neutral reading. However, it is possible that favorable US spending readings and fresh concerns that a surging US budget deficit will increase the size of US treasury auctions. In fact, the size of US treasury auctions has already jumped and caused concern toward US debt, and there is talk of foreign buyers demanding a premium to hold US debt.
CURRENCIES:
In retrospect, the dollar was unable to make a definitive directional move last week despite bullish tailwinds from US scheduled data Furthermore, the dollar was unable to see definitive and sustained downside action despite US scheduled data turning off softer in the second half of the trading week. Therefore, the currency markets clearly lack a definitive leadership currency but also appear to be skeptical of the US economy. While the charts favor the bull camp in the dollar, the charts are more indicative of a consolidating pattern rather than a bullish pattern.
STOCKS:
We think the equity markets today were somewhat exhausted from the breakneck gains in the beginning of January, especially with the potential for an early US rate cut deteriorating over the last several weeks. However, corporate earnings news earlier in the week tended to favor the bear camp with sharp declines in Intel and Tesla, countervailed by favorable earnings from American Express and Colgate Palmolive. Global equity markets at the start of this week were mixed with weakness in China extending into the new trading week.
While the Goldilocks mentality created by mixed US data and signs of softening US inflation is a significant underpin for the bull camp, uncertainty toward China following a property company liquidation and escalating fighting in the Middle East could dampen investor interest. However, with a midweek US central bank rate decision/and the press conference the aggressively deflated prospects of an early rate cut could see a final letdown.
GOLD, SILVER & PLATINUM:
With a three-day high and a developing pattern of higher highs and higher lows, the technical picture for gold has improved. However, with a stronger Dollar to start out the week, the positive start in gold and silver might indicate the metals are embracing flight to quality uncertainty from China which saw a major property company forced by a Hong Kong Court to liquidate its assets. The markets continue to see chatter regarding rate cuts from the ECB and stories suggesting the Fed is already acting which signal a pivot.
Even though gold and silver have not responded consistently to flight to quality events, aggression in the Middle East continues to increase with Yemeni terrorists backed by Iranians attacking more ships and launching a drone which killed three US military personnel. Another flight to quality issue surfaced over the weekend following a congressional request for the FBI to investigate Gaza cease-fire protests in the US for possible links to Russia.
Platinum positioning in the Commitments of Traders for the week ending January 23rd showed Managed Money traders went from a net long to a net short position of 6,824 contracts after net selling 7,505 contracts.
COPPER:
The charts in the copper market are damaged with the soft close on Friday and more importantly with the lower low to start the new trading week. In fact, with the copper market short-term overbought from a 5-day $0.18 rally, fresh financial contagion fears in China from the forced liquidation of major property developer Evergrande the outlook for Chinese copper demand is wounded. However, Chinese copper smelters are considering early maintenance because profit margins are extremely tight with treatment charges nearing record lows which in turn typically means lower copper concentrate loadings in March. In other words, signs of tightness in Chinese copper have been offset by the news of a failure in the Chinese property sector.
ENERGY COMPLEX:
With an attack on an oil tanker in the Red Sea, the first US casualties, an 18% decline in weekly crude oil in floating storage, reports of a 1.1% year-over-year increase in Indian December crude oil imports, and perhaps most significantly increasing involvement of Iran the latest new high for the move in crude oil is fully justified. In another “feather ruffling” development, Nancy Pelosi from the US House of Representatives indicated an investigation of pro-Palestinian protests in the US should be investigated by the FBI for Russian collusion. The Congresswoman indicated protest funding channels needed to be investigated for signs of Russian financing.
The gasoline market continues to surge alongside crude oil and diesel despite less supportive fundamentals. However, the attack on a Red Sea oil tanker and exploding shipping costs adds to the outside market lift for gasoline. While the natural gas market managed to reject a return to contract lows last week, very mild US and European temperatures throughout the coming week should push down heating degree days and throttle natural gas prices downward.
BEANS:
The return of moisture for Argentina next week, after this week’s expected hot/dry conditions, may come just in time to avoid any significant crop losses and that gives the edge to the bear camp. Brazil’s Safrinha crop is 11% planted and 1st crop corn is 15.3% harvested, compared to 12.1% a year ago. Brazil’s weather is expected to be largely favorable over the next 2 weeks. Last week, a mere 9 1/4 cent March trading range for the week was the smallest since early 2020.
WHEAT:
Rains in the southern HRW belt and stagnant world prices has the bear camp at the wheel to start the week. The far southern Plains saw good rains across Oklahoma and northern Texas over the weekend, as did the SRW areas in Illinois, Indiana, Ohio and Kentucky. Friday’s announcement that China has approved Argentine wheat for import for the first time was a negative factor after a $0.44 rally off the lows on March Chicago.
HOGS:
April hogs were sharply higher on Friday, as they continued to benefit from strong cash pork prices and a more favorable environment for commodities in general, but they could be running up against key technical resistance. With Friday’s move, the market achieved the 0.618 retracement of the decline from the contract high in October 2022 to this month’s contract low. At Friday’s high, prices had increased 8% in just four sessions and were up 17% from the January 2 low.
CATTLE:
April live cattle built on last Thursday’s breakout rally to trade to their highest level since November 9 on Friday, and strong cash cattle and beef markets and could continue to support the market this week. Heavy snow and extreme cold had supported the market on concerns about weight gain, and feedlots are now confronted with muddy conditions, which is also detrimental. Cash live cattle were roughly $2 higher last week. As of Friday afternoon, the five-day, five-area weighted average price was $175.26, up from $173.55 the previous week.
COCOA:
Cocoa’s daily trading range on Friday was a fraction of the size seen from Tuesday through Thursday and was at least 100 points below the daily highs seen during those 3 sessions. With the market staying well clear of those highs despite receiving bullish supply news on Friday, cocoa is showing more signs that a near-term top may be in. March cocoa held within a comparatively small inside-day trading range as it finished Friday’s trading session with a what was still a sizable gain.
COFFEE:
Coffee prices have seen volatile two-sided action over the past two weeks, but they will start today’s trading on course for a fourth monthly gain in a row. With an improving demand outlook providing support, coffee prices can maintain upside momentum through month-end. March coffee was able to shake off early pressure as they went on to finish Friday’s trading session with a sizable gain. For the week, March coffee finished with a gain of 8.70 cents (up 4.7%) and a second positive weekly result in a row.
COTTON:
March cotton edged higher at the start of this week following Friday’s sharp reversal lower. The market has found support in recent weeks on strong US export sales reports, but last week’s report was a disappointment, and traders may be worried that exports will slow down as the Chinese New Year holiday approaches. Traders are also concerned that the rally this month has priced the US out of the world market. Thursday’s export sales report showed 142,000 bales of cotton were exported during the week ending January 18.
SUGAR:
Sugar prices had a downbeat finish to last week’s trading, but they continue to hold their ground above the 50-day moving average and remain on track for a sizable monthly gain. With a bullish shift in the Brazilian supply outlook, sugar prices may regain upside momentum this week. March sugar continued to have downside follow-through on Thursday’s negative reversal as it finished Friday’s trading session with a moderate loss. For the week, however, March sugar finished with a gain of 0.20 cent (up 0.8%) which was a fourth positive weekly result in a row.
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