Written Commentary
BONDS:
While June bonds forged a higher high at the start of this week, the markets are facing headwinds from comments from the Fed’s Bostic at the end of last week suggesting he now sees only one US rate cut this year which is down from the two rate cuts he previously expected. Bostic indicated residual inflation pressures combined with resilient US economic data altered his previous more dovish views. However, recent US economic data has softened, and the markets will be presented with a veritable avalanche of data early this week before the third most important inflation report of the monthly inflation report cycle is released (PCE) on Thursday.
CURRENCIES:
The Dollar extended its March recovery move to a 5-week high before finishing last Friday with a sizable gain. With no major US data to digest, the Dollar took direction from significant weakness in other major currencies. The Pound remains under pressure after the Bank of England signaled a mid-year rate hike at yesterday’s policy meeting, while the Swiss franc lost ground following yesterday’s rate cut by the Swiss National Bank. Not surprisingly, the Dollar is recoiling from the sharp range up rallies from the end of last week with less dovish comments from the Fed’s Bostic undermining the dollar early this week. Adding to the downward bias in the dollar is improving sentiment toward Asian currencies, with the Bank of Japan increasingly moving toward an exit of negative interest rates. Despite a softer dollar in the early trade today following a slight reduction in dovish Fed influence, the euro remains pinned down near last week’s spike lows and more downside is ahead. Fortunately for the bull camp in the Pound, the currency has recovered after two tests of the 200 day moving average in two trading sessions. Like the pound, the Canadian dollar has also posted a double low in the early trade this week.
STOCKS:
Global markets started out with choppy action before losing strength and finding a mildly negative tone midway through Friday’s trading session. Bitcoin had a sharp selloff which dampened global risk sentiment, while an antitrust suit against Apple cast a shadow across several market sectors. US equity markets came under pressure and finished with mixed results as the Nasdaq closed with a mild gain. Global equity markets at the start of this week were generally lower with down markets slightly outnumbering markets trading higher. Despite the Chinese Premier making an unusual appearance by top Chinese leadership at the Annual Chinese Development Forum and promising China will begin to treat foreign companies on a par with domestic companies, global equities are showing signs of initial weakness. While the S&P has corrected from last week’s latest all-time high, the correction so far has been shallow, and the index has generally discounted bearish international geopolitical and economic developments. Unlike the S&P, the Dow futures hold a net spec and fund long leaving the index vulnerable to corrective action if support levels are violated. Like the Dow, the NASDAQ futures hold a net spec and fund long after adding aggressively to long positions last week and that could expand the corrective early bias today.
GOLD, SILVER & PLATINUM:
With Israel preparing for an attack of Rafah against the will of the international community, that is likely to give way to increased terrorist attacks on shipping in the Red Sea area and perhaps elsewhere in the world. In fact, a tanker was hit over the weekend, but the fire was contained. It also appears that Russia and Ukraine are stepping up attacks on energy related facilities and that could also yield sudden flight to quality lift for gold and bitcoin. Unfortunately for the bull camp, the US dollar showed significant strength at the end of last week and appears to have entered an uptrend pattern and that is likely to provide consistent headwinds for precious metal prices. Yet another pressure for gold prices came from comments from the Fed’s Bostic over weekend as he suggested he saw only one interest rate cut this year!
Not surprisingly, the silver market is also in a corrective track and with open interest near the highest levels in several years and prices sitting nearly $3.00 above last month’s low, a retrenchment to the 200-day moving average down at $24.04 is possible.
COPPER:
Despite breaking a trend of massive weekly inflows to Shanghai copper warehouse stocks with last Friday’s modest outflow, the copper trade did not return to concern of tightening copper supply inside the world’s largest consuming nation. Furthermore, the International Copper Study Group pegged the world refined copper market in January to hold an 84,000 metric tonne surplus, and that likely sparked the sharp range down move last week. Further adding into the bear case is news that Chinese copper smelters have agreed to increase usage of domestic scrap at the same time they curb output.
ENERGY COMPLEX:
Despite a bullish commodity forecast from Goldman off expectations of better growth and lower interest rates, crude oil is merely holding within Friday’s range in the early action this week. Unfortunately for the bull camp, crude oil in floating storage increased over the last week by 87,000 barrels, with supply in the Middle East and west Africa climbing and US Gulf Coast supplies up a blistering 147%. Fortunately for the bull camp floating supply in the Asian Pacific region fell by 1.8% with European inventories down by less than 1%. Relatively speaking, the gasoline market has held up better than the crude oil market, perhaps because of last week’s larger than expected contraction in EIA gasoline inventories. The diesel market is in a much different positioning in spec and fund categories than gasoline, with a setback of nearly 7 cents from the level
BEANS:
As forecast, soil replenishing rains fell across eastern Nebraska, Iowa, and southern Minnesota over the weekend with more expected this week in Wisconsin and Illinois, which favors the bear camp. While these rains may be seen as just what the doctor ordered before spring planting, positioning for Thursday’s key USDA quarterly stocks and acreage intention report will overshadow weather as the week moves forward. Brazil bean harvest is pegged at 70% complete and heavy hedge selling on rallies in US futures last week was noted.
CORN:
Last week’s small 11 3/4 cent weekly range on May futures is an indication the corn market has found some equilibrium before Thursday’s key USDA quarterly stocks and acreage report. Good moisture has fallen in eastern Nebraska, Iowa, and southern Minnesota with more this week expected in Illinois. Follow-up rains will be needed but drought area across the Midwest will shrink. Northern Brazil rains will continue for the next several days before the regions begins to dry down again. The Farm Futures corn acreage survey was 92.4 million acres, down 2.3 million from last year. The major feature this week will be the USDA report on Thursday morning and Bloomberg’s average estimate for corn acreage is 91.8 million acres, down from last year’s 94.6 million and above the Outlook Forum number of 91 million.
WHEAT:
Potential disruption to Russian exports got the attention of the wheat market Friday and May Chicago finally closed over the 20-day moving average giving the edge to the bull camp. The second-largest Russian grain trader, RIF, says its wheat exports have been disrupted due the countries agricultural watchdog tagging its cargoes for not meeting safety and quality standards. This is a clear political stunt as the government has been trying to gain more control over private Russian grain exporters and the company’s CEO says the government is trying to pressure them into buying the company at a lowball price. As Russia is the largest exporter of wheat, any disruption gets market attention, but in this case does not take wheat off the market so the bullish market reaction will likely be short-lived. The average guess for Wheat stocks is 1.047 billion bushels, up from 941 million in March of 2023.
HOGS:
The intermediate uptrend in April remains in place despite their lower every day last week. Pork prices continue to firm, which provides underlying support. The USDA pork cutout, released after the close Friday, came in at $93.86, up $2.99 from Thursday and up from $92.51 the previous week. This was the highest it had been since October 2. However, heavy production could undercut the market. The USDA estimated hog slaughter came in at 485,000 head Friday and 95,000 head for Saturday. This brought the total for last week to 2.532 million head, up from 2.466 million the previous week and 2.473 million a year ago.
CATTLE:
The USDA Cattle on Feed Report on Friday was bearish, particularly for the deferred contracts, because placements came in above the average expectation and above the upper end of the expected range, and we look for the market to open lower at the start of this week. The report showed placements for the month of February at 109.7% of last year versus an average trade expectation of 106.2% and a range of 102.7% to 108.8%. This was the highest placements as percent of the previous year since February 2022. February marketings came in at 103.4% versus 103.9% expected (range of 102.5%-104.7%).
COCOA:
Cocoa will start this week’s trading with a gain of 2,890 points for March (up 47%) and 4,777 points for the first quarter (up 115%) which compares with a gain of 1,874 points for the previous five quarters combined. In addition, the previous seven trading sessions have had an average daily trading range of 615 points with March 19th having the smallest range of 449 points during that timeframe. May cocoa shook off mild early pressure and reached another new record high before finishing Friday with a very large gain. For the week, May cocoa finished with a gain of 921 points (up 115%) and a fifth positive weekly result in a row.
COFFEE:
Coffee prices continue to see choppy action, but they have now lifted clear of a spike low for a third time since the start of this year. If global risk sentiment can improve going into month-end and quarter-end, coffee should maintain upside momentum. May coffee was able to rebound from early and midsession pullbacks before coming under significant late pressure to finish Friday with a mild loss. For the week, however, May coffee finished with a gain of 1.90 cents (up 1.0%) and a third positive weekly result over the past four weeks.
COTTON:
Traders have grown concerned about the potential for a drop in US cotton exports as the Southern Hemisphere crops become available, but they may also be reluctant to push too far down ahead of the USDA Prospective Plantings report on Thursday. The dollar closed strong last week, which does not bode well for US exports. The export sales report last week showed strong deliveries at 397,297 bales, the highest since April 27, 2023. Deliveries to China totaled 183,722 bales, the highest since January 25 at 183,741 and the second highest since August 2020. However, total sales were mediocre at 133,082 bales, and sales to China were almost nil at 2,194. US soil moisture is much better than it was a year ago, which could encourage heavier plantings this spring.
SUGAR:
Following a rough start to the month, sugar prices will start this week on-track for a mild gain for March. There have been bearish supply developments from south Asia which have weighed on prices, but potential production issues in Brazil may help sugar maintain upside momentum going into month-end and quarter-end. May sugar once again approached the 50-day moving average and backed off from that level to finish Friday’s outside-day trading session with a moderate loss. For the week, May sugar finished with a loss of 0.27 cent (down 1.2%) which broke a 2-week winning streak.
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