Weekly Futures Market Summary Feb 7 22

BONDS:

Not surprisingly, the treasury markets came under significant pressure in the wake of a nonfarm payroll reading that was several times the anticipated jobs gain. In fact, whisper numbers overnight had nonfarm payrolls declining by as much as 400,000 and that exaggerated the surprise and the downside reaction in prices. Within the report the prior month was revised higher, average hourly earnings jumped more than expected in the labor participation rate jumped. Countervailing the bearish treasury results was a 0.1% increase in the unemployment rate last month.

Typically, a surprising nonfarm payroll result can take several sessions to be factored into prices, and with the January payroll number on Friday coming in significantly stronger than expected, the residual impact could remain in place for several days as it erased fears of a job market slowdown that had been facilitated by the initial disappointing December number.

CURRENCIES:

Like other financial markets, the currency markets were surprised by the magnitude of gains in the US nonfarm payroll report, but the upside reaction in the dollar was wholly disappointing to the bull camp. In fact, seeing an upward revision in the December reading and a significantly better than expected January payroll reading clearly shifted the pendulum in favor of a March rate hike, and that should have lifted the dollar broadly. The Dollar was confined to a tight inside-day range at the start of this week, with mild upside follow-through from last Friday’s reversal off a three-week low.

The Euro found moderate pressure early this week, but remained near the top end of last week’s sharp upside move. European data was mixed as a better-than-expected Euro zone Sentix survey was balanced against disappointing German industrial production. The surprisingly hawkish post-meeting comments from ECB President Lagarde have put rate hikes on the table for this year which should provide underlying support for the Euro, but it may have trouble regaining upside momentum early in the week. The Commitments of Traders report showed non-commercial & non-reportable traders were net sellers of 59 contracts, reducing their net long to 51,770.

The Yen had an inside-day range at the start of this week, finding mild support but remaining well below last week’s highs. The Japanese leading economic index came in better than expected and reached a new seven-year high, but the Bank of Japan is likely to require more signs of economic strength before they consider tightening their monetary policy. The Yen may need to receive additional safe-haven inflows before it can lift clear of its recent lows.

STOCKS:

The equity markets waffled around both sides of unchanged at the start of this week with the trade unable to determine the net take away from the US monthly nonfarm payroll report. Fortunately for the bull camp, Amazon earnings saved the market from finishing the week on an extremely negative footing following major disappointments from Facebook earnings and Facebook stock price action. Not surprisingly, the NASDAQ saw the biggest benefit from the Amazon news, and we are very surprised that fears of rising interest rates did not result in instant and very aggressive selling. Global equity markets were mixed at the start of this week with more gainers than losers.

Like the S&P, the Dow futures forged a large, range-down washout and recovery back above the midpoint on Friday, indicating a market that is nearing a sold-out condition. However, big picture fundamental changes are afoot, with rising rates a major negative for the bull camp to contend with. We see an attempt to retest last Friday’s low, but acknowledge the potential for optimistic news from the pandemic front as US infections decline. Unfortunately for the bull camp fresh longs probably require a stop below 34,500, which would mean prices are too high to enter a balanced risk/reward position.

GOLD, SILVER & PLATINUM:

Despite a slightly stronger dollar, gold prices forged a fresh seven day high early this week and appear to have absorbed last week’s threat of rising interest rates. However, treasury yields are within striking distance of multiyear highs and given the much stronger-than-expected US nonfarm payroll report yields could breakout to the upside at any time. While the gold market last week carved out a gradual upward slope on its charts, the action was undersized considering the amount and importance of fundamental news flow. Unfortunately for the bull camp, surging jobs figures from the US were seen as a development capable of shifting the US Fed into action next month instead of the trade increasing the probability of inflationary price action.

Unlike the gold market, the silver market last week did not rally and in fact at times silver was $0.50 lower on the week. Fortunately for the bull camp, the most recent COT positioning report adjusted into the low late last week probably registered a net spec and fund long near the lowest levels since June 2019! In other words, further selling in silver will push the market toward a “mostly liquidated” condition. The Commitments of Traders report for the week ending February 1st showed Silver Managed Money traders reduced their net long position by 15,867 contracts to a net long 11,573 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 13,339 contracts to a net long 35,413 contracts.

The palladium market finished last week with negative charts and a fresh sell signal in short-term indicators. Therefore, it is not surprising to see the market forged a lower low and an eight day low early this week. Apparently, the market sees the potential talks between the French president and the Russian President as a possible sign of following relationships which in turn reduces the threat against palladium supply. We attribute the weakness to a lack of fresh developments involving Russia and the Ukraine. However, with Russian President Putin returning to Russia and pipeline flows from Russia very slow or nonexistent, tensions should remain high and the threat against palladium supply will provide support to palladium prices.

While the platinum contract generally slid last week, or in some views remained caught in a $1,000 to $1,050 coiling pattern, the market has forged a fresh lower low along with palladium early this week giving the bear camp control. While platinum is unlikely to draft as much lift from the Russian situation, it should see spillover support from palladium and crude oil price gains. Unlike the palladium market, the net spec and fund positioning in platinum is net long but only half of the level seen within the last 12 months! Platinum positioning in the Commitments of Traders for the week ending February 1st showed Managed Money traders are net long 9,760 contracts after net buying 1,759 contracts. Non-Commercial & Non-Reportable traders are net long 22,050 contracts after net buying 552 contracts.

COPPER:

All things considered, the copper market performed impressively last week in the face of an extended Chinese holiday. Unfortunately for the bull camp, the copper market is seeing pressure from a disappointing Chinese services PMI reading for January which came in at 51.4 versus the prior reading of 53.1! While not a significant development, LME copper warehouse stocks have reestablished a pattern of declines and the trade has generally viewed demand to be outstripping supply. However, the copper market appears to be starting the week off on a back foot despite reports of a possible supply disruption in Chile where road blockades are beginning to limit supply flow.

ENERGY COMPLEX:

While a favorable jobs report and declining US infections are favorable demand developments, the energy markets have seen several bearish supply developments early this week. First and foremost in the bear’s quiver are insider reports that US and Iran talks are set to conclude which the trade interpreting that as a sign that Iranian oil could find its way back to the market. Furthermore, weekly crude in floating storage increased by 7.9% on a week over week basis and there has been a recovery in European wind and solar generated power. On the other hand, a cyber-attack of a European oil distribution hub and predictions that China will have to “restock” should provide modest underpin for prices. Obviously, the standoff between the Russians and the Ukrainians sits at the top of the bulls’ list of arguments, with some traders wondering if Russian President Putin secured support from the Chinese leader for some type of aggressive action. Right behind the Russian influence is tightening distillate supplies thought to be the result of massive trucking and transportation use in order to repair kinks in the supply chain.

Like crude oil, the gasoline market forged very significant gains last week, with a low to high rally of $0.20 and that could leave the market subject to corrective weakness and a possible dip in March gasoline back below a key pivot price of $2.6375! While the gasoline market could be considered to have the least bullish fundamental supply set up of the complex, demand is strong enough to keep EIA stocks near last year’s levels. In fact, EIA gasoline stocks shifted back into a 2-million-barrel deficit last week, after being at a slight surplus the week before. From a technical perspective, the market is short-term overbought but not so from a classic positioning perspective. Despite the breakneck, 90-cent rally since early December, the spec and fund net long in gasoline remains 40% below the record long! The Commitments of Traders report showed managed money traders were net buyers of 5,295 contracts of gasoline (RBOB) for the week ending February 1, increasing their net long to 80,579. Non-commercial & non-reportable traders were net buyers of 9,140, bringing their net long 77,178. On the other hand, last week’s rally put short-term technical signals in a sell mode.

Supply tightness in heating oil, distillates, and diesel continues to be touted in the press and that should provide the ULSD market with a cushion against what appears to be a corrective tilt early this week. The press rightly suggests the ramping up of diesel prices is the result of strong transportation activity, as supply chains rush to normalize. Like other segments of the petroleum complex, the ULSD spec and fund net long positioning remains very modest despite the 90-cent rally since the beginning of December. The Commitments of Traders report showed managed money traders were net buyers of 2,348 contracts of ULSD for the week ending February 1, increasing their net long to 34,234. Non-commercial & non-reportable traders were net long 46,134 contracts after buying of 2,078. We see a critical pivot point today at $2.8147.