Written Commentary
BONDS:
Apparently, exploding precious metal prices with all-time highs in gold and a fresh all-time high in copper have not undermined treasuries yet! However, we suspect there is a slight measure of doubt that global central bankers will be able to snuff out inflation with fear of spiraling inflation smoldering just under the surface. In fact, expectations for a June euro zone rate cut are falling and the trade will likely take significant direction from an avalanche of US Federal Reserve speeches Monday morning. In a minimal negative for US treasury prices China left its benchmark rate unchanged in a sign that the Chinese government is not concerned about the condition of its economy.
CURRENCIES:
In retrospect, the dollar continued to display a lack of bullish resiliency late last week with the inability to sustain rallies off supportive fundamental data. However, in retrospect, macroeconomic conditions have shifted in favor of the bear camp with signs of US slowing and some evidence of moderating US inflation. Therefore, the bias is down in the dollar with the euro and pound the most likely benefactors of that weakness. On the one hand, the dollar has managed to arrest a significant six-day corrective setback which was likely the result of a softening of US data and market views that US inflation has moderated.
Despite a reduction in market expectations for a June ECB rate cut, the euro is not showing strength early this week which suggests the dollar and euro will likely remain within the consolidation ranges bound by the last three days trade. In addition to winning by default against the dollar and the euro, the Pound should see buying interest from a hot UK house price reading. Like the dollar and euro, the Canadian looks to chop within a range as fundamentals in Canada are the conflicted like the fundamental conditions in other currencies.
STOCKS:
Despite significant two-sided volatility late last week, the bull camp ultimately regain control over the trend in equities. While we are suspicious of the argument that this week’s developments serve to increase the odds of a US rate cut later this year, seeing treasury prices rally (yields fall) certainly removes a concern from the marketplace. In retrospect, the trade continues to aggressively embrace AI opportunities and bullish sentiment was broadened this week from a return of aggressive trading in meme stocks.
While the Dow has become short-term oversold with large and compacted gains last week, investors remain confident, and a plethora of potential negative issues continue to be discounted. With the NASDAQ unable to forge higher highs Friday and posting only minimal gains this morning, investors are concerned about overvaluations and perhaps are anxious about the Wednesday Nvidia earnings report.
GOLD, SILVER & PLATINUM:
With an explosion in prices at the start of this week, gold reached a new all-time high while silver also posted explosive gains and the highest price since February 2013! With the battle heating up in Gaza, a slight shift in the US Fed policy pendulum in favor of the doves last week, and a strong close last week on rising open interest should leave gold in a position to forge even higher all-time highs. However, the silver market could become the sleeper market as a cheap gold substitute, especially with a surprise upside extension. Keep in mind that silver is significantly cheaper than gold, and with silver still well below all-time high levels above $50 from decades ago.
COPPER:
Despite some wild two-sided trade last week that gave off the impression of a blowoff top, the July copper contract recovered and closed just under the contract high of $5.1280 setting the table for a new record high early this week. Clearly, the trade is fully embracing long term structural tightness fear, with users, speculators, fund managers and perhaps the Chinese government all scrambling to secure supply. However, despite the explosion in prices, LME and Shanghai copper warehouse stocks have not plummeted indicating a race for deliverable supply.
ENERGY COMPLEX:
With the correction last week resulting in a temporary two month low, the market aggressively rejecting that failure and extending on the upside at the start of this week, the charts clearly remain in the favor the bull camp. While it is difficult to separate extra special supply-threatening events in the Middle East, fighting has intensified and is more open with both sides of the argument embraced throughout the world. However, the Saudis have reportedly stepped in to attempt to mediate the conflict in Gaza, but historically fighting in Middle East is not easily solved.
While the gasoline market does not have as bullish of a fundamental set up as crude oil, last week’s price action suggests gasoline has become the leadership market. Holding back the gasoline market is the startup of a Mexican refinery, a short-term overbought technical condition, and somewhat anemic US implied gasoline demand. While the threat of a halt of pipeline supply flow may not be significant, seeing the Ukrainian power grid severely damaged (particularly in the region supplying pipeline power) would likely send a shudder through Europe of fear of a lack of power for cooling.
BEANS:
July soybeans pushed above last week’s high at the start of this week, keeping the edge with the bull camp. Rains are moving through Iowa, Wisconsin, and Minnesota today and another round of showers is expected in the upper Midwest later this week before it then moves into the Eastern corn belt. Planting will continue to be a stop and go affair for many areas of the Midwest this week. The latest planting progress updated late Monday is expected to be near 45% complete.
CORN:
The bull camp is looking to take back control after last week’s pullback pushed prices down into support. We see planting delays and threats of a rail workers strike in Canada this week giving the edge to the bull camp. The storm track is expected to be active across the central and eastern corn belt this week and next, slowing planting in some areas. This afternoon’s planting progress number is expected around 70% complete. China’s April imports of US corn were up 17.6% from April of last year and year to date are up 6.5%.
WHEAT:
Weather volatility in wheat continues with a strong rebound at the start of this week after closing weak last Friday. More talk of how much frost damage was done in the Black Sea region last week and a mostly dry forecast for the next 10 days is providing underlying support. APK-Inform says frosts in Ukraine have caused 20 to 30% yield loss in some fields but a full assessment will take some time. Ukraine’s waterborne food exports were down 17.1% from last year for the 1st half of May.
HOGS:
Disappointingly for the bull camp, Thursday’s upside reversal rally was nearly erased on Friday, as July hogs reversed and came close to testing Thursday’s three month low. Friday’s Commitments of Traders report showed managed money traders were net sellers of 9,043 contracts of lean hogs for the week ending May 14, reducing their net long to 56,128. This is down about 40% from their a near-record net long of 92,731 on April 2 and indicates a substantial portion of the overbought condition has been corrected. The USDA estimated hog slaughter came in at 468,000 head Friday and 36,000 head for Saturday. This brought the total for last week to 2.404 million head, up from 2.379 million the previous week but down from 2.407 million a year ago.
CATTLE:
August cattle pressed above the previously formidable 200-day moving average resistance at 178.70 on Friday on a strong seasonal demand outlook. Cash live cattle traded in active volume in Kansas on Friday and decent volume in Iowa and Nebraska. In Kansas there were 13,624 head reported at $184-$190 with an average price of $189.81, up from an average of $184.25 the previous week. In Nebraska there were 4,643 head reported at $188-$190 with an average of $189.78, up from $186.52 the previous week. The USDA boxed beef cutout was up $3.30 on Friday at $313.45. This was up from $294.57 the previous week and was the highest it had been since March 21.
COCOA:
Cocoa prices have seen two tight consolidation ranges during the past eight sessions that have sandwiched last Monday’s record-sized daily decline. With the market showing few signs of sustaining a recovery move, cocoa prices are likely to retest their May lows early this week. July cocoa found early strength before it pivoted back to the downside as it went on to finish Friday’s trading session with a moderate loss. For the week, July cocoa finished with a loss of 1,543 points (down 17.4%) which was a third negative weekly result over the past four weeks.
COFFEE:
The coffee market was able to break out above its recent consolidation zone as the market received some badly-needed bullish supply news. To sustain a recovery move, coffee prices will also need to receive more bullish supply developments from the major Arabica-growing nations as well. July coffee was able to build onto early support as it reached a 2-week high before finishing Friday’s trading session with a sizable gain. For the week, July coffee finished with a gain of 5.45 cents (up 2.4%) which is a second positive weekly result in a row.
COTTON:
The cotton market is struggling to establish a low. US weather is benign, and the US crop appears to be well positioned for a recovery from last year. Soil moisture in west Texas is much better than it has been for the past couple of years. US cotton plantings were proceeding at an average pace as of last week’s Crop Progress report. This pace may have slowed down in the Delta and southeastern US last week due to heavy rains, and this could show up in Monday afternoon’s Progress report. With prices down 28% from their peak in February, there is not much of a premium built into the market, which could be an issue if a weather problem develops.
SUGAR:
Sugar prices only had one positive daily result last week as the market broke out of the late April/May consolidation zone to the downside. Although there have been recent positive demand developments, sugar needs to receive bullish supply news to turn back to the upside. July sugar continued to slide further to the downside as it finished Friday’s inside-day trading session with a moderate loss. For the week, July sugar finished with a loss of 1.17 cents (down 6.1%) which broke a two-week winning streak.
Please contact us at 1.877.690.7303 or via email at sales@admis.com for any questions or comments on this report or would like more information about ADMIS research.
>>Explore more here
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
