Not surprisingly, the treasury markets broke out to the downside in the wake of a “hot PPI” but also because of a significant jump in Michigan sentiment readings. Even more discouraging to the bull camp is the fact that the upside breakout in treasury yields failed to knock stocks down hard and in turn provide safe-haven cushion for bonds and notes. The +0.5% increase in the February PPI report leaves inflation readings on a monthly basis in the upper 90% of the readings of the last 6 years, and that fosters talk that the Fed may not remain patient.
While the dollar rebounded aggressively late last week from the big spike downmove on Thursday, the market did not appear to shift fully back into a bullish posture. In fact, given the sharp jump in US rates, very positive US scheduled data and hot PPI readings, one might have expected the dollar to have ranged sharply higher. Therefore, we continue to doubt the sustainability of the rally in the dollar over the last 3 weeks. The dollar trade early this week remains within the downward channel established early last week, with traders seemingly discounting rising US yield opportunities and instead liquidating long dollar positions because of declining safe-haven interest.
All things considered, the equity market performed impressively late last week in the face of another upside breakout in US treasury yields. Certainly, there was divergent action between the NASDAQ and Dow which somewhat questions the bull case but perhaps equities are becoming more comfortable with the strong likelihood of rising rates. While market chatter did not seem to focus on vaccine and therapeutic news, several new scientific twists increase the likelihood of an end to the pandemic.
GOLD, SILVER & PLATINUM:
While last week gold and silver showed promise with a 3-day series of gains, the focus of the precious metals markets continues to shift daily thereby adding chop to daily price action. However, the action in the dollar has had the most consistent impact on gold and silver, with the markets showing very little in the way of reflation gains even in the face of massive “risk on” economic euphoria sessions. Even more surprising is the lack of response to a series of hot global inflation/price readings, but that influence is likely to become more prominent in the week ahead with the US Federal Reserve Open Market Committee meeting on Thursday. Obviously, interest rates and equities are now linked with “good economic news” likely bad news for stocks and other physical commodities.
In retrospect, palladium and platinum markets appear to have settled back into a spread trading pattern as prices have displayed a lot of divergence. In our opinion, both PGM markets retain the potential for large price gains in the event the trade begins to embrace the idea that more portions of the world will begin to reopen with industrial and jewelry demand likely to improve. Unfortunately for the bull camp, reopening in the US has yet to accelerate and areas like Europe and the UK are likely to be at least several weeks behind the US in lessening restrictions. Last week palladium ETF holdings increased by 3181 ounces but declined Friday by 685 ounces to remain 1% higher on the year.
With a fresh upside breakout for the move early this week, the copper market has started out on a positive footing, with early buying the result of favorable Chinese data. In the first 2 months of 2021, China saw an increase in unwrought copper imports of 4.6%, while imports of copper ore and concentrates rose marginally. While the gains in Chinese industrial production and retail sales appear to be massive, the data is being compared to the worst of the pandemic in China last year. Nonetheless, industrial production gained 35.1% and retail sales jumped by 33.8%, while Chinese house prices increased by 4.3%.
While the bias looks to remain up in the crude oil market into a new trading week, we detect a measure of exhaustion among the bull camp in crude oil. We base that opinion on the fact that strong Chinese economic data, signs of significant Chinese fuel demand and a decline in global floating storage has failed to lift prices sharply early this week. Chinese January and February apparent oil demand increased by 16.8% over last year’s January and February demand, but demand in China last year was abnormally low, as the Chinese pandemic was at its zenith. In fact, favorable news on the virus front in the US combined with what appears to be more new all-time highs in certain US equity market measures, should have reignited last week’s recovery rally early this week.
The soybean market held support last week and looks poised for a resumption of the uptrend soon. May soybeans closed near unchanged and up 21 cents from the lows as the soybean oil market continued to surge into new contract highs for the seventh session in a row. May meal closed sharply lower on the session and the selling pushed the market down to the lowest level since December 18. Talk of increased harvest activity in Brazil and ideas that rains this week in Argentina could help improve crop conditions helped to pressure. In addition, a rally in the US dollar added to the negative tone.
The corn market has consolidated since late January but appears set for a resumption of the uptrend soon. Taiwan is tendering for 65,000 tonnes of corn. May corn managed to close higher on the session Friday and near the highs of the session as the early selloff to the lowest level since March 5th failed to attract new selling interest. Increased harvest pressure in South America was seen as an early negative force, but increase concerns for the late plantings for the second crop in Brazil and ideas that this week’s rain in Argentina may not provide significant help to the yield outlook helped to support. A huge rain event across the Western Corn Belt, better weather for Argentina, and bearish outside market forces helped pressure the market last week with May corn down 6 1/2 cents for the week.
China sold 2.26 million tonnes of wheat from state reserves at a weekly auction on March 9-10, the highest volume since late January and about 56% of the 4 million tons offered, the National Grain Trade Center said Monday. Total sales so far this year have reached 21.8 million tonnes. July Kansas City wheat closed lower on Friday led by good crop weather for the US and Europe and experienced the lowest close since January 11. For the week, the market fell 23 cents or down 3.6%. Increase moisture for the central and Western Plains helped to spark some selling and the jump in the US dollar did not help. Nebraska, Colorado, Kansas and Oklahoma all received drought busting type rains for the week ending March 19 in this helped to spark fairly aggressive selling. The 6 to 10 day and 8 to 14 day forecast models show above normal precipitation.
April hogs closed slightly lower on the session Friday with a quiet, inside trading day. This left the market with a gain of 382 points (4.4%) for the week. Talk of the short-term overbought condition after last week’s rally helped to trigger some selling pressure. Strength in cattle helped provide some underlying support. June and August hogs have posted new contract highs. The USDA pork cutout released after the close Friday came in at $97.08, down from $98.68 on Thursday but up from $93.80 the previous week. The CME Lean Hog Index as of March 10 was 87.65, up from 86.76 the previous session and 84.06 the previous week.
The central Plains stay wet with more rain this week and the 6-14 day models show above normal precipitation for the Plains. Reopening optimism is strong and this should help support a turn up in beef demand as stimulus checks hit consumers. The cattle market closed moderately higher on the session Friday but well off of the highs. The buying pushed June cattle up to the highest level since February 17. April cattle opened lower but has also rallied sharply. The USDA boxed beef cutout was up 35 cents at mid-session Friday but closed 80 cents lower at $225.87. This was down from $231.33 the previous week and was the lowest the cutout had been since January 22. Cash live cattle traded in moderate volume on Friday mostly steady with recent trends. As of Friday afternoon, the 5-day, 5-area weighted average price was 113.53 versus 113.61 the previous week.
Cocoa’s lukewarm finish to last week has left the market well below its early March highs, but nearly 200 points above its mid-February lows. Although the near-term demand outlook remains in doubt, cocoa’s bullish longer-term demand prospect should keep the market well supported on near-term pullbacks. May cocoa came under early pressure and while it put together a late rebound, it still finished Friday’s trading session with a moderate loss. For the week, however, May cocoa finished with a gain of 24 points (up 0.9%) which was a third positive weekly result over the past 4 weeks and was a positive weekly reversal from Monday’s 2-week low.
Coffee prices have regained their strength following a sharp selloff to start out March and have lifted well clear of last week’s lows. While near-term demand remains uncertain, coffee has a bullish supply outlook that can help to extend this current recovery move. May coffee was able to bounce back from early pressure and reach a new 1-week high before finishing Friday’s outside-day trading session with a mild gain that was a fourth positive daily result in a row. For the week, May coffee finished with a gain of 4.15 cents (up 3.2%) which was a third positive weekly result over the past 4 weeks and was a positive weekly reversal from last Tuesday’s 3-week low.
May cotton closed moderately lower on Friday but stayed inside Thursday’s range throughout the session and the market closed slightly lower for the week. The dollar index was moderately higher, which makes US cotton more expensive on the world market. Grain markets were weaker at times during the session, and this may have made cotton longs nervous. Exports are proceeding at a good clip. Cumulative Sales have reached 96% if the USDA’s forecast for the 2020/21 marketing year versus a 5-year average of 87%. This suggests there is room for the USDA to increase their export forecast in future reports. Traders may have been disappointed that the USDA did not do so in last Tuesday’s monthly supply/demand update, but this does not close the door for future revisions.
Sugar prices have spent the first half of March seeing coiling price action within a consolidation range, but they are starting to receive carryover support from several key outside markets. If this can continue during this week’s action, sugar should be able to regain and sustain upside momentum. May sugar remained on the defensive all day as it finished Friday’s inside-day trading session with a moderate loss. For the week, May sugar finished with a loss of 27 ticks (down 1.6%) which was a third negative weekly result in a row.
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