Global equity markets were mixed overnight with Asian Markets generally higher and the rest of the world under minor pressure. The Asian session was quiet data-wise, while the European session presented Italian business and consumer confidence both of which came in better than expected. The North American session will start out with a weekly private survey of same-store sales, followed by the April Case-Shiller home price index which is expected to hold steady with March’s 5.9% reading. The Conference Board’s June reading on consumer confidence is forecast to have a moderate decline from May’s 117.9 reading. The June Richmond Fed manufacturing index is expected to uptick from May’s 1 reading. San Francisco Fed President Williams will speak during early morning US trading hours while Fed Chair Yellen, Philadelphia Fed President Harker and Minneapolis Fed President Kashkari will speak during the afternoon. Earnings announcements will include Darden Restaurants and IHS Markit before the Wall Street opening.
Clearly the markets are short-term overbought with the sharp range up extension yesterday but the market has already corrected part of that overdone condition with this morning’s retrenchment. While a normal retracement of the June rally allows for a correction down to 155-26 without reversing the overall uptrend pattern we doubt the market will see that big of a dip unless there is a clean sweep of positive data this morning. A more credible support point in September bonds is seen early today at 156-15 to 156-13 and it is possible that the bull camp will seize any soft data point today as a reason for a return to this week’s high. We would note that the case Shiller home price survey has seen an entrenched pattern of gains and any noted weakness in those measures today could be a catalyst for another range up extension.
The bear camp has a slight edge to start today as fears of slack data and over valuations remain in place.
Using recent economic patterns traders should expect the dollar to exhibit temporary volatility through a series of data points but ultimately the dollar should exit the data window with an even weaker bias.
While we can’t argue against additional short covering gains but the fundamental deck remains stacked against the bull camp. It goes without saying that fundamental resistance in the marketplace sits firmly with the access US supply, but the bear camp might also feel a little near term pressure from declining weekly inventories and firming seasonal demand. Critical resistance points in August crude oil are seen at $43.65 and then again at $44.27. Initial chart resistance in August RBOB prices today is $1.4501 and $1.4717.
With gold and silver rejecting a moderate portion of the downside thrust yesterday and now extending the recovery effort today the technical look of the charts has improved. However, it is difficult to fully adopt a bullish view unless the Dollar remains down through an active US scheduled report slate later this morning. In fact the US dollar yesterday actually finished in positive territory in the wake of three negative (contractionary) scheduled data points and that might be suggesting the greenback is not as vulnerable as it would seem. Therefore, the currency market impact on gold and silver is critical and a new low for the move in the September Dollar Index (below 96.51) could fan fresh speculative buying. Initial resistance in August gold to start today is seen up at $1,256.00 and support tightens up to $1,248.80. In the end the tone for the day might be set off a private home price survey release as the lack of strength in home prices could increase the pressure on the Dollar and increase the rotation back into gold. Initial resistance in September silver is seen up at $16.78 and support moves up to $16.63.
While we acknowledge the favorable technical action since the June 21st low, we continue to have trouble justifying fundamentally prices near the highest level in nearly 2 months in the wake of disappointing US data and recent deflationary action in other industrial commodities like crude oil and gold. In short, the path of least resistance from the charts remains up, but we are highly suspicious of getting long at current levels unless global equities settle into a series of range up moves and economic sentiment toward China is improved by a tangible data point. Support and a pivot point in September copper this morning is seen at $2.6345 and close-in resistance is seen up at $2.6565.
The market could find support today from the ratings coming in unchanged, but the trade might really get excited over some heat moving east into the center of the corn-belt after the July 4th holiday. With the market down over 25 cents last week and some potential threatening weather showing up, a recovery bounce looks likely. Look to buy December corn at 377 1/2 looking for a test of the 200 day moving average at 387 1/4. Key technical resistance is at 387 1/4 and 391 1/2.
Yesterday’s ratings at 66% G/EX were lower than trade expectations, with the drought in the Plains starting to take effect on the row crops. With the potential for increased heat in the longer term outlook, we feel some weather premium should be put back into prices. The managed money net short is close to 100,000 contracts and after last week’s 39 cent decline, a bounce is probable. Rains later this week will be beneficial, but like spring wheat, the trade may start paying attention to the Dakotas. Aggressive traders could look to buy the November 960 call and sell the November 880 put for a cost of 3 cents.
Close-in support for November soybeans is at 915 with 932 1/2 and 938 1/2 as initial resistance.
September wheat is trading just above the 100 day moving average at 460 1/2 and the 200 day moving average at 461 3/4. A test of these levels is possible but should hold. The wheat market has not had a monthly higher close since February and is up 21 3/4 cents on the month so far. The condition report is about as expected, but if the longer term 8-14 day forecast verifies, the spring wheat crop will continue to suffer. Key support for Chicago September wheat will emerge is at 460 1/2 followed by 456 1/2. Look for a test of 500.
Beef prices are at the lowest level since May 4th and cattle placements for the month of May were up 12.2% from last year and the highest since 2007. Cash cattle traded at $118-$123 last week and traders await this week’s market price. With extreme heat moving into the plains, it will make it more difficult for feedlots to expand cattle weights. August cattle resistance is at and 120.52. Consider selling in the 120.52 to 122.20 zone.
The market seems to be putting in a major seasonal peak ahead of the 4th of July holiday and ahead of the USDA Hogs and Pigs report which is expected to show a continued slow expansion in the hog herd to a record high. Without help from extra exports, the trend looks down ahead. August hog selling resistance is at 79.97 and 80.15, with 77.60 and 75.80 as next downside targets.
China cotton sales from reserves have reached 1.62 million tonnes which is 7.29 million bales which is cotton demand which will not be on the world market and is a bearish longer-term factor. From an extreme oversold level, the outside day up is a supportive technical development. Look for short-term support for December cotton at 66.74, with 69.03 and 69.39 as initial key resistance points.
Brazil will still be looking at a sizable drop in their Arabica production from last season while Colombia and Guatemala have had recent supply difficulties as well. With the Arabica/Robusta price spread still at a comparatively low level, additional signs that demand is finally improving could drive the market further clear of its recent lows. September coffee will find near-term support at 122.35 while resistance is up at 128.20 and 132.10.
Cocoa still has a sizable net spec short position, although not as large as expected given the market’s recent chart damage. Going into quarter-end, however, it may not take much in the way of bullish supply news to revive cocoa’s recovery move. Near-term support for September cocoa is at 1812 while resistance is at 1924.
There is still plenty of time left in the Brazilian harvest, so there is still potential for weather issues that disrupt their harvesting and crushing. Unless that occurs, however, sugar prices may have further downside left to go before they find a near-term floor. Downtrend channel resistance in October sugar today is 13.30 while the next downside target is at 12.50.