Global equity markets were mostly higher overnight led by gains in the US on Wednesday, upbeat attitudes toward financial shares and stronger than expected German consumer confidence. The Asian session was highlighted by a May reading on Japanese retail sales which managed a rise of 2.0%. The European session featured a set of June Euro zone confidence and sentiment surveys both of which were improved. The markets were also presented with a June reading on German CPI which showed a slight rise in prices. The North American session will start out with a weekly reading on initial jobless claims expected to show a slight downtick from the previous 241,000 reading. The highlight for global markets will be an updated look at US first quarter gross domestic product which is forecast to hold steady with the previous 1.2% annualized rate. St. Louis Fed President Bullard will speak during afternoon US trading hours. Earnings announcements will include Walgreen Boots Alliance, Constellation Brands, ConAgra and McCormick and Co. before the Wall Street opening while Nike and Micron Technology report after the close.
While the September bonds have not exactly damaged their charts with this morning’s weakness prices are clearly vulnerable from a technical perspective and a retest of the 154-09 level is possible in the wake of the early US numbers. In the event that US first quarter GDP is revised higher that could be cause for a fresh downside break out in bonds and a possible probe of the 153-25 level. The note charts also present a bearish track this morning especially with the market unable to hold 126-00 overnight. Initial downside targeting today in the wake of US scheduled data is 125-28 and even lower action might be seen if equities manage to resume yesterday’s impressive upside action. In the end a number of key bull themes have been reversed and the bull camp is now on the defensive.
Investor sentiment should improve alongside consumer and business sentiment especially in the wake of positive US bank stressed test results.
Unless US initial claims surprise with an outsized decline or there is some sign of a possible compromise on healthcare reform the slide in the dollar looks to continue. For the time being the trend is your friend in the currency markets.
An anemic upward bias remains in place, and a normal corrective retracement bounce back up to $45.93 can’t be ruled out in the coming session. In fact, in the event the dollar continues to fall, equities continue to throw off positive sentiment and favorable European economic vibes are fully embraced there is no reason to call for an end to the short covering rally. Furthermore some might see the story that OPEC revenues in the first half of this year remain above the first half of 2016 as a supportive sign, as OPEC would still seem to have the financial resolve to carry out the promised production cuts into the future. However, the inability to hold the $44.70 level (which was a key technical point on the charts 3 weeks ago) could take control away from the bull camp.
While we respect the potential for support off the declining dollar, we view the fundamental and technical condition of the gold market today as suspicious at best. On the other hand, with the silver market breaking out to the highest level since June 15th and the silver market less reliant on classic safe haven influences and more sensitive to positive economic conditions, we can’t argue against silver prices clawing back up to $17. However, we don’t see current risk and reward conditions and the fundamentals to be overly favorable for long side silver plays as weakness in gold will probably scare off some would-be silver buyers. In fact, our view toward gold is to sell a rally back toward the June 26th high which is close to a downtrend channel resistance line up at $1,262.70.
The path of least resistance remains up in copper in the wake of positive Chinese demand developments earlier this week and that bullish vibe is fanned this morning by another higher high on the charts and really strong German and European sentiment results. As suggested the charts clearly favor the bull camp with uptrend channel support in September copper today rising to $2.66 and the next possible upside target seen up at $2.7180.
The market may need some weather premium and end users should take coverage. Conditions so far this year have not been close to last year’s nearly perfect growing conditions, but rains this weekend will be timely. Weakness can also be attributed to the slide in Argentine corn offers which are now more than $10.00 per tonne below US Gulf offers. With the bulk of pollination ahead of the trade, however, heat that moves into the Midwest will get traders and end users attention. Momentum indicators are oversold, traders should look to buy December corn near 375 looking for a bounce to at least 391 1/2 and don’t rule out a run to 422.
November soybeans could see more short covering going into tomorrow’s key USDA reports. The weather is threatening but the reports could remind traders of the burdensome short-term supply and the outlook for increased planted area for this season. The latest 6-10 and 8-14 models bring heat right over the Dakotas early next week and expands it into Iowa, Illinois, Missouri and Nebraska into July 12th. Managed money traders are short over 100,000 contracts which might want to bank profits prior to the USDA number, especially given the latest forecast. Initial resistance for November soybeans is at 932 1/2 to 938 3/4 with support at 918 1/2. Aggressive traders could look to buy the November 960 call and sell the November 880 put for a cost of 4 cents. The first key resistance if the weather stays threatening is 958 3/4.
September wheat continues to hold above the 461 support level but is clearly being pulled higher by the Minneapolis contract. Still, momentum studies have stabilized and look to turn higher which could get the attention of trend-following traders. Look for further strength today as the forecast remains hot and dry in the northern Plains. Support in September wheat is at 473 followed by 469 1/2, with resistance at 488 1/2 followed by 500. Don’t rule out a continued advance to 529.
Beef prices are at the lowest level since May 1st and non-commercial traders (as of June 20th) still held a near record high net long position of 160,870 contracts. August cattle resistance is at 118.55 and 120.52, with 111.32 as next downside target. Consider selling a bounce.
The short-term cash news remains supportive and the key USDA Hogs and Pigs report is likely to show a continued expansion in the industry and record pork production prospects ahead. New sellers, however, might want to wait for confirmation of a top in pork cut-out before entry. August hog support is at 78.55 with 80.75 resistance. A decisive move through resistance would turn the charts bullish. October hog resistance is at 68.80 and 69.77.
Traders will monitor the weekly sales report this morning, and there are also growing fears that planted acreage may have increased. Since the March intensions report, soybeans fell sharply and cotton rallied which might have been enough to entice more of a shift to cotton. Look for short-term support for December cotton 66.91 with 68.84 and 69.67 as initial key resistance. A decisive push through support would leave 65.40 as next target.
It may take further convincing to shift coffee over to a positive demand outlook, but this year’s build-up of supply in the US and Europe may be topping out. With Brazil having a sizable decline from last season’s output, coffee prices should build on their rebound from last week’s lows. September coffee will find near-term support at 122.40 with resistance at 130.80 and 133.90.
While neither the supply or demand outlook has shifted into a solidly bullish stance just yet, there are early signs that both are on the mend. Given the market’s sizable net spec short position, cocoa could see short-covering. Near-term support for September cocoa is at 1842 while resistance is at 1927. If support cannot hold, 1771 becomes next target.
Brazil’s Center-South growing areas have had mostly dry weather over the past few weeks, so the second-half June production and harvesting totals are likely to come in strong as well. With India having above-average monsoon rainfall so far this year, sugar prices may be heading further to the downside before they find a near-term floor. Technically, a move over steep downtrend channel resistance at 13.03 for October sugar could support a significant recovery bounce with 13.52 as initial key resistance. The September 2015 low is at 12.27.