Global equity markets overnight were mostly lower as weakness in the Dollar suggests that the world’s economic engine is chugging slowing than might be necessary to justify stock prices at record levels. The Asian session was relatively quiet with the latest monetary policy meeting by the Reserve Bank of Australia that as expected had no changes to either rates or policy but the bank did remain upbeat toward economic prospects. The European session started out with the June Sentix index of Euro zone investor confidence which surprised the trade with a much stronger than expected reading. In fact the Sentix readings were the strongest in 10 years! April Euro zone retail sales were expected to hold steady but instead they managed a minimal gain. The North American session will start out with a private weekly survey of same-store sales. The April job openings and labor turnover (JOLTS) survey is expected to have a moderate decline from March’s 5.743 million reading. The May Canadian Ivey PMI number is expected to have a modest downtick from the previous 62.4 reading. Earnings announcements will include HD Supply Holdings before the Wall Street opening while Keysight Technologies reports after the close.
The bias remains up and the prospect of a fresh higher high is strong. Critical support in the September Bonds moves up 154-11 today, with similar support in September Notes rising to 126-14. In the end economic and political uncertainty remains squarely in the windshield and resistance in bonds is likely to be taken out early today in the wake of the JOLTS report this morning. With the Treasury markets not impacted at all by the surprise Trump offering of hope of Infrastructure spending yesterday it is clear that sentiment is leaning bullish and more gains in prices are due! One has to shift to weekly charts to find resistance 3/4 of a point above the early trade in September Bonds this morning!
We don’t see panic selling but we do expect to see disappointment “selling”. Slack data and rising UK geopolitical uncertainty gives the bear camp just enough news to erode prices.
A lack of leadership in the currency markets allows the Yen temporary strength.
With the short covering rally on Monday back above the Friday high failing to hold, we get the sense that crude oil has corrected the oversold condition enough to set the stage for a fresh downside extension and at least a temporary probe back below $46. In order to turn the tide around requires some salient supply threat in the Middle East, a July crude oil trade back above $48.42 or ideas that crude stocks are likely to forge another outsized decline on Tuesday afternoon or on Wednesday morning.
As indicated already, it is difficult to take control away from the bull camp in gold and silver. While one can’t predict additional geopolitical uncertainties, one should expect to see further dollar declines ahead because of slack US scheduled data, and that in turn should continue to provide currency-related buying of gold and silver. In the end there might be little in the way of resistance in August gold until the $1,325 level and key support moves up to $1,283. In July silver, there might be little in the way of resistance until $18 and key support moves up to $17.54.
As we indicated in the prior session’s coverage, disappointing US economic data has apparently more than offset a slight improvement in Chinese economic data and also it appears this morning that economic sentiment world-wide continues to erode. With an ongoing pattern of lower highs and now another lower low, the technical edge remains with the bear camp despite the market getting closer to a “mostly” liquidated spec positioning. Near term downside targeting in July copper is seen at $2.50 and then again down at $2.4960. In order to turn the tide around probably requires a rally and close back above $2.5875 in the July contract.
December corn settled at 392 for the fourth time in the last five weeks. The last three times the market settled at this level, it was down hard the next day (on May 4th by 8 cents, on May 23rd by 5 cents and on May 28th by 7 cents). Every time the corn market has been pushed down to 385 or lower, it has been a buy. With plenty of weather to trade in the near future and the possibility of corn acres being down 1-2 million acres or more, look to buy weakness on setbacks. Traders should consider buying December Corn at 389 1/2 with an objective of 447.
With the trade focusing on the recent drier trend for the upper Midwest, November soybeans were well supported yesterday. Warmer and drier weather is just what the producer needs to finish off the last of the soybean plantings, but the market will be sensitive to a continued drier trend. Traders looking for a weather scare strategy might consider buying the November 1000/1100 call spread at 11 cents and also sell the November 840 puts near 10 cents. Aggressive short-term traders could buy November soybeans at 926 3/4 with 940 3/4 and 948 1/2 as initial resistance.
With a strong seasonal buy coming up in the second half of June, and large speculative shorts likely getting a bit anxious to get their position covered, the short-term trend looks up. Not too many of the new “algorithmic” style traders know that the Minneapolis wheat contract once traded well above $20.00 a bushel. We still like buying the September Wheat 470 call and selling the September Wheat 420 put. July wheat short-term buying support is at 428 3/4 with 443 3/4 and 452 1/4 as resistance.
We expect beef prices and cash markets to work lower into the fall but the short-term situation remains supportive. Fill-in beef demand was apparently strong after the holiday weekend. Speculators hold a record net long position which leaves the market vulnerable to an aggressive long liquidation sell-off “once” the beef market peaks. The outlook into the third quarter is bearish but the near-term news remains positive. August cattle support is at 123.42 with 127.50 resistance. If the market takes out the early May highs, 131.57 is next technical target.
The selling this week is confirmation of the key reversal last week and leaves a bearish tilt to the technical set-up. Longer-term exports to Mexico and China are bullish forces but the temporary lull in demand and a bear trend for China pork prices since March are bearish forces. Close-in resistance for July hogs is at 81.87 with key support back at 78.07 and 76.37. August hog resistance is at 81.82 with 77.72 as initial key support. Consider selling a bounce.
Crop weather looks favorable for a good start to the crop and the conditions report shows the crop already above average. July cotton resistance is at 77.47, with 75.50 as support and 71.97 as the next downside target. December cotton resistance is at 73.13 with 71.65 and 71.00 as next support.
The market will need to see an extended drawdown in ICE exchange coffee stocks to feel there is a bullish shift in global demand. However, any additional signs of a larger than expected decline in Brazilian Arabica output could lift the coffee market well away from last Friday’s low for the move. July coffee will have near-term support at 127.15 while resistance is at 131.50 and 132.95.
Cocoa is unlikely to shake off volatile price action over the near-term, and needs clear evidence of lower mid-crop output to improve on a bearish supply outlook. Even so, the market has rebounded from two sharp selloffs in the past two weeks which provides some hope that the late April/early May lows will hold for the longer-term. Near-term support for July cocoa is at 1941 while resistance is at 2033.
It may take stronger crude oil prices to result in Brazilian mills making a longer-term shift towards ethanol production. However, multi-year low sugar prices are likely to cause financial damage to many of those mills if they add further supply to an already saturated global market. July sugar near-term resistance is at 14.35, with 13.63 as support.