A set of Markit “flash” manufacturing PMI readings came in well above forecasts which gave another boost to global risk sentiment. The latest US Markit “flash” manufacturing PMI and January existing home sales result were better than expected, and that more than offset lukewarm readings for Canadian retail sales and UK retail sales. The Fed’s Barkin said that inflation was “not in the numbers”, while the Fed’s Rosengren said that he sees a robust US economy recovery underway by the second half of this year and that the Fed will keep rates at near-zero levels until the 2% inflation target has been reached.
The Dollar remained on the defensive late last week, but was able to put together a mild recovery before finishing Friday’s trading session with a moderate loss. A decent existing home sales result fueled safe-haven outflows from the Dollar going into the weekend. The British Pound reached a new multi-year high, while the Canadian Dollar reached a 4-week high as recovery currencies benefited from improved risk appetites. The Dollar had a volatile start to the week as it shook off early pressure with a sizable rally, only to fall back onto the defensive coming into Monday morning’s action.
After a subdued start, global markets regained a mostly positive risk tone midway through Friday’s trading session, but lost their strength going into the close. Chinese equity markets reopened after their holiday week, and a moderate gain by the Shanghai Composite index provided a mild boost to risk appetites. US equity markets rebounded from negative territory and were posting moderate gains at midsession, but fell back and finished with mixed results. Global markets started out the week with a positive tone, but they took a negative shift coming into Monday morning’s action.
GOLD, SILVER & PLATINUM:
The gold market is starting off the week on a positive note despite a move to even higher interest rates for Treasuries, with Bonds and Notes prices moving to their lowest levels in 11 months. Gold may be viewed as an inflation hedge, but it is hard to compete with interest-bearing instruments when interest rates are climbing to their highest levels in a year. The negative shift in risk attitudes overnight may have sparked safe-haven interest for gold. April gold’s outside day-higher close on Friday was the first technical indicator that the bulls could grab onto in quite a while, and it might be enough to spark a modest correction this week. The trade will be look to the Fed Chairman’s testimony this week to see if there is any change in the current policy, which is tolerating modest inflation until the economy gets back on track. Platinum was lower early this week as the slightly negative risk tone seems to be weighing on the market. March palladium is well off its overnight highs, which war highest level in a month.
Copper prices have risen more than 58.00 cents over the past 18 sessions and it at its highest level since the summer of 2011, but the market is extremely overbought with and record spec net long position. March copper blew past the key $4.00 level on Friday and went on to post massive gains, and it followed through with sizable early gains today, but then it fell more than 10.00 cents coming into Monday morning’s action. The market finished last week with a gain of 28.60 cents (up 7.6%) and a third weekly gain in a row. There was a sizable build in Shanghai exchange copper stocks of more than 34,000 tonnes, which was third build in a row. They are back above the 100,000-tonne level for the first time since November.
While crude oil price had pulled back from their highs on Thursday, they remain nearly $25 above the early November lows. The market may have corrected its technically overbought condition, but it remains vulnerable to profit-taking and long liquidation early this week. April crude oil was pressured by end-of-week profit-taking and long liquidation on Friday and posted heavy losses, but it found renewed strength at the start of this week. The market finished last week with a loss of 12 cents, which broke a 2-week winning streak and formed was a negative weekly reversal from last Thursday’s multi-year high.
A drier southern Brazil this week could boost their harvest. The market seems poised for a resumption of the uptrend but a lack of new import news from China plus ideas that South America yields are improving have helped to hold old crop soybeans in a consolidation. There is very little rain in the forecast for Argentina for the next week or more and traders see the second driest February in more than 30 years as a possible supportive force. The cool weather and good rains in late January have kept crop conditions good but this could change in the next few weeks. November soybeans broke out to the highest level since January 15 on Friday and posted contract highs this morning.
While the USDA news was supportive on Friday and Argentine weather still looks dry for the rest of the month, the technical action was negative on Friday as the market is still correcting the overbought condition. China plans to enhance its ability to secure supplies of grains according to an annual document issued by the state Council and published by the official news agency Xinhua. The news puts grain production at a higher priority in the country, and food security as a more important issue. Old-crop corn fell under pressure with the March, May and July contracts closing lower after an outside day down on Friday, while December corn was near unchanged after trading to a new contract high. The USDA expects US corn ending stocks to increase slightly in 2021/22 to 1.552 billion bushels, up 50 million from 2020/21. Total use is expected to increase 3% based on increases in domestic consumption and continued strength in exports.
With the tightening US ending stocks outlook, and fears that the US will be hit with winter kill damage, the market is trying to hold onto a positive short-term uptrend. With tight supplies in Europe, traders remain concerned over Russia’s new crop export tax impact. Since July 1, Russia wheat exports have reached 30.1 million tonnes, up 28.2% from last year. Cold weather for the Black Sea region may be providing some buying support this morning as well. New and old crop wheat prices closed lower on Friday after trading higher earlier in the session. The USDA is projecting 2021/22 US wheat ending stocks to come in at 698 million bushels, which would be the tightest in eight years. This is based on expectations of an increase in the amount of wheat use for livestock feed. US wheat export sales for the week ending February 11 came in at 399,121 tonnes for the 2020/21 (current) marketing year and 214,400 for 2021/22 for a total of 613,521. This was down from 635,396 the previous week and was the lowest since overall total since January 14. Current year sales were at the low end of expectations, but new crop sales were much better than expected.
The hog market remains in an overbought technical set-up, but the pork value uptrend continues and news of increased food security measures are factors which support. The USDA pork cutout, released after the close Friday, came in at $90.14, up $1.03 from $89.11 on Thursday and $86.82 the previous week. This was the highest the cutout had been since October 26. April hogs ended lower after starting the session out stronger on Friday. The CME Lean Hog Index as of February 17 was 77.20, up from 76.53 the previous session and up from 72.36 the previous week. The USDA estimated hog slaughter came in at 488,000 head Friday and 173,000 head for Saturday. This brought the total for last week to 2.438 million head, down from 2.654 million the previous week and down from 2.611 million a year ago. Slaughter last week was down 6.6% from last year but pork production was down just 4.9%.
The Cattle on Feed Report was bearish. Placements for the month of January came in +3.2% from a year ago versus an average trade expectation calling for -0.2%. The placements number was also well-above the upper end of the range as well (+1.3% to -4.4%). Marketings in January were close to expectations, declining 5.6% versus an average estimate of calling for a 5.3% decline. This put the February 1st On-Feed supply at the bearish end of expectations, +1.5% from last year versus an average estimate calling for +0.9% and a high-end estimate of +1.1%. The extremely high placements number is especially bearish for the deferred contracts, but with the strong premium the nearby futures have to the cash market, and the tenuous technical setup, we could see active selling across the board. The USDA boxed beef cutout closed 38 cents higher at $239.23. This was up from $232.37 the previous week and was the highest the cutout had been since December 2.
While cocoa continues to face pressure from near-term global demand issues, the market has rejected several downside breakout moves since mid-December. With a much more positive demand outlook for the second half of this year and beyond, cocoa may be in a good position to extend a recovery move. May cocoa saw an abrupt change in fortune as it shook off early pressure and rallied sharply at midsession before finishing Friday’s trading session with a sizable gain. For the week, May cocoa finished with a gain of 10 points (up 0.4%) which broke a 3-week losing streak and was a positive weekly reversal from last Wednesday’s 14-week low.
While coffee’s post-holiday rally ran out of steam, the market has once again climbed back to the upper portion of its recent consolidation zone. With demand showing some early signs of improvement as the market prepares for a sharp drop in Brazilian production, coffee may regain upside momentum and retest the mid-January high before the end of February. May coffee shook off midsession pressure from end-of-week profit-taking and climbed back into positive territory before finishing Friday’s trading session with a modest loss. For the week, however, May coffee finished with a gain of 6.10 cents (up 5.0%).
March cotton closed higher for the sixth session in a row on Friday and the market surged to new highs early this week even with weakness in equity markets. It has made new contract highs in five of the past six sessions. The USDA Outlook Forum expects US cotton production to increase by 2.5 million bales in 2021/22 to 17.50 million. However, ending stocks are expected to fall to 3.80 million bales from 4.30 million in 2020/21, due to an increase in domestic consumption. Exports are unchanged. This would make ending stocks the lowest since 2016/17. US cotton export sales for the week ending February 11 came in at 119,515 bales for the 2020/21 (current) marketing year and 2,112 for 2021/22 for a total of 121,627. This was down from 445,468 bales the previous week and was the lowest since October 8. Cumulative sales for 2020/21 have reached 13.161 million bales, slipping below last year for the first time since December 10 but still well above the 5-year average of 10.609 million.
Sugar prices have rallied to their highest levels in nearly 4 years with the front-month contracts in backwardation, but the March/May spread has been unable to retest its 1.09 cent from early November since the start of the year. While sugar has a bullish supply/demand outlook and carryover support from key outside markets, it may be vulnerable to profit-taking and additional long liquidation during the final month of February. May sugar built upon a gap-higher opening and shook off midsession pressure to extend their longer-term uptrend with a moderate gain during Friday’s trading session. For the week, May sugar finished with a gain of 1.25 cents (up 8.0%) which was only the second positive weekly result over the past five weeks.
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