While some initial data last Friday should have provided support to treasury prices, subsequent Michigan consumer sentiment readings revived economic hope and pressured bond and note prices. However, it could be difficult to force bond and note prices down through consolidation support in the coming sessions without forward movement on 8 US stimulus package. In fact, uncertainty from the likelihood of a Chinese retaliation against the US due to the blockage of certain app downloads should provide an underlying measure of safe haven interest. While initial gains in bond and notes are not significant relative to recent history, the action appears to “wake up” the bull camp to start the new week.
We see the currency markets caught in a sideways consolidation range until there is a more definitive track found on the direction and pace of the global economy. Certainly, the dollar has some support going forward from the potential of a re-ignition in US/Chinese tensions but also from the ongoing weaker action in global equities. We will continue to reiterate that the Swiss Franc, Euro and Pound are “recovery currencies” which need clear prospects of a return to global growth to resume their very definitive March through July rallies. Obviously, there is a wide-ranging list of bearish fundamental issues in the headlines to start the new week as the dollar was obviously catching an early safe-haven lift.
While equity prices generally stood up to the US government intervention in the battle over TikTok, that issue is thought to have longer-term negative ramifications in the event that China retaliates and various US companies see revenues cut as a result. The bull camp should be a little discouraged that some bargain-hunting buying/rotational interest fizzled last Friday, but more specifically because of the lack of benefits from a jump in Michigan consumer sentiment readings for early September. Going forward, the bull camp appears to be increasingly dependent on some form of stimulus package agreement. Global equity markets at the start of this week dove with many markets approaching declines of 3%, with investor psychology up ended by fears of renewed lockdowns in Europe, reduced US stimulus prospects due to the fight over the Supreme Court position and because of potential trouble for 5 major global banks. As if the previously noted bearish forces were not enough, the equity markets should see additional pressure from a series of negative corporate headlines flowing from Nikola and tech sector and because of increased tensions between the US and China.
GOLD, SILVER & PLATINUM:
The shift early this week into a global anxiety condition from the surge in global infection counts, talk of a return to lockdowns in Europe and a sharp recovery in the dollar has put gold and silver under significant pressure. Unfortunately for the bull camp, recent mixed to slightly soft US scheduled data was generally seen as a negative, indicating an extension of deflationary slow growth selling of gold and silver might return instead of a those fears being seen as a catalyst for safe-haven buying of gold and silver. In our opinion, the death of the US Supreme Court Justice has turned up political tensions in Washington to a level that would seem to completely erase the potential of an agreement on a fresh stimulus package and if that view is given credence by the Democrats, that could send gold and many other physical commodities even lower early this week.
The platinum market continues to be tied to the action in gold, silver and palladium with some correlation with global equities. Unfortunately for the bull camp, platinum prices into the new trading week were still near the middle of the last 2 months sideways consolidation which could allow noted declines without violating significant chart support points. While the net spec and fund long positioning in platinum is in the upper portion of the last 4 months range, the current net spec long is only one-third of the 2020 high net spec and fund long positioning. The Commitments of Traders report for the week ending September 15th showed Platinum Managed Money traders added 5,521 contracts to their already long position and are now net long 11,470. Non-Commercial & Non-Reportable traders added 4,849 contracts to their already long position and are now net long 26,683.
While the December copper contract did forge a fresh higher high for the move, it would not seem like the global environment is conducive to further gains in copper and other industrial commodities. In addition to the surging fears of lost US economic momentum the markets are also seeing renewed fears of a return to lockdown throughout Europe in-an-effort to squelch the surge of new infections. However, copper was initially lifted by an extension of the bullish Chinese copper demand argument apparently with the trade referring back to recent strength in Chinese industrial activity but depending on the magnitude of the global fear of a return to anemic global activity the Chinese demand story might be unable to support prices at such lofty levels ($1.10 above the March lows).
Bullish buzz has been drained from crude oil with signs of increased Libyan output (expected to jump to 310,000 barrels per day from just 90,000 barrels per day), renewed global demand fear from lockdown fears, less tropical storm fear (Tropical Storm Beta lacks strength and is already beyond the brunt of offshore production), a stronger dollar and from news that Indian August crude oil imports were down 23% compared to year ago levels! Certainly, the bull camp has some arguments in its favor with Chinese imports of US crude oil expected to post a new record this month. Unfortunately for the bull camp surging Chinese demand (which many think is set to abate) will not be a full offset to the threat of significant global energy demand losses in the event of widespread return to lock down. However, the fear of rising supply/slackening demand are somewhat tamped down by weekly floating storage readings falling to the lowest level since April, with the largest decline seen in the US Gulf Coast.
November soybeans closed 15 cents higher on the session Friday, and also posted a new contract high at 1046 3/4. The market has now rallied 20.6% from the August 10th lows and technical indicators are extremely overbought. In addition, the short-term weather would suggest active harvest just ahead with a lack of rain for the next five days. However, the 6-10 day models show above normal precipitation. Producer-sellers could get active at any time. Open interest has jumped from 833,635 contracts to 963,245 during the rally. Relative strength and stochastic readings are in the 90s and are showing some divergence. The upside breakout from September 14 to new contract highs has left 1072 3/4 as the next upside target. Exporters reported the sale of 132,000 tonnes of US soybeans to China. The rally was led by meal which pushed up to the highest level since May of 2018.
December corn closed higher again last Friday, and is now up for six of the last seven trading sessions. This left the market with a gain of 10 cents on the week. The buying pushed the market up to the highest level since March 11. Exporters announced the sale of 210,000 tonnes of US corn to China. While technical indicators are showing extreme overbought readings, there is still no technical sign of a top. In addition, open interest is pushing higher which is positive, but the fund trader net long position is nowhere near a level which would be considered overbought.
December wheat closed 18 3/4 cents higher on the session Friday, and this left the market up 33 cents for the week. The buying pushed the market up to the highest level since February 21st. Talk of tightening supply from key exporters helped to provide underlying support. In addition, technical action was bullish and this might have attracted active short covering and new buying support from fund traders. Dry weather in Argentina, US and Black Sea region has traders nervous as well. There is no rain in the five day forecast for the central and southern Plains.
December hogs closed slightly lower on the session Friday after a gap higher opening and strong trade early. Ideas that US exports will pick up steam due to the ban on German pork exports to many countries helped to support. Another six cases of African swine fever have been confirmed in wild boars in the eastern German state of Brandenburg. This brings the total to 13 wild boars which have tested positive for African swine fever. The strong gains in pork values last week could be a sign that commercial traders expect more exports ahead. The USDA pork cutout, released after the close Friday, came in at $86.46, down 2 cents from Thursday but up from $80.56 the previous week. China’s national average spot pig price as of September 21 was down 1.78% from the previous day. For the month, prices are down 6.21%. China officials see more balanced supply/demand for the 4th quarter.
With cattle slaughter down 2.4% for the week, and a firm tone to the cash market, futures were able to recover last week. However, if the slaughter pace picks up with futures at a stiff premium to the cash market, and with sluggish beef prices, the market is still vulnerable to long liquidation selling. December cattle closed moderately higher on the session Friday and the rally has pushed the market up to the highest level since August 21st. A better tone for the cash market last week plus continued strong gains in other agricultural markets helped to support. The USDA boxed beef cutout was up 57 cents at mid-session Friday and closed 59 cents higher at $215.64. This was down from $219.89 the previous week. It was the first time in 11 straight sessions that the cutout had increased. The average dressed steer weight for the week ending September 5th came in at 918 pounds, up from 916 the previous week and up from 893 a year ago.
Global demand prospects over the rest of this year will continue to be an issue for the cocoa market until the Halloween holiday at the end of October. There is another late-October event that has ramped up near-term supply anxiety in the market, and that can help cocoa prices to remain fairly well supported on near-term pullbacks. December cocoa held within an inside-day range as it shook off midsession pressure to finish Friday’s trading session with a sizable gain. For the week, December cocoa finished with a gain of 93 points (up 3.6%) which broke a 2-week losing streak.
While last week’s brutal turnaround was fueled in part by weakness in a key outside market, coffee was clearly pressured by a bearish shift in Brazilian weather. The market should have a clearer gauge on Brazilian rainfall by Tuesday, however, and that may help coffee prices to find their footing early this week. December coffee fell back on the defensive and reached a new 5-week low before finishing Friday’s trading session with a sizable loss. For a week that had no positive daily result, December coffee finished with a loss of 18.95 cents (down 14.3%) which was a second negative weekly in a row and the largest weekly loss in several years.
December cotton closed lower for the fourth straight session on Friday, as it continued to give back the gains it made off of hurricane concerns. The market still closed 0.85 higher for the week. After some heavy buying at the beginning of the week with the threat of Hurricane Sally bringing damaging rain and wind to southeast cotton belt, there was not much reported damage in its wake, and the inland flooding was not as bad as some had feared.
Sugar prices have been able to extend their recovery move up to levels seen during their August consolidation zone in spite of significant weakness in a key outside market. While there have been recent bullish supply developments, the overall global outlook remains bearish which may limit further upside during the final weeks of the third quarter. March sugar came under early pressure, but was able to find strength late in the day as it finished Friday’s trading session with a moderate gain and a fourth positive daily result in a row. For the week, March sugar had a gain of 78 ticks (up 6.2%) which broke a 4-week losing streak. Sugar was able to maintain upside momentum in spite of a more than 2.5% decline in the Brazilian currency which would encourage Center-South mills to produce more sugar for exports.
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