Global markets were mostly higher with the XETRA DAX, All Ordinaries and IBEX bucking the trend and trading weaker. The Asian session featured April readings for the Japanese leading economic index which was weaker but that was partially offset by the fact that the Japanese coincident index showed improvement. The European session started out with April German factory orders which were weak as expected. A May reading for a key private survey of UK house prices was forecast to have a moderate decline but it managed to best expectations with a modest rise. The markets were presented with an upwardly revised OECD world growth forecast with the new estimate raising world-wide growth to 3.5%. The North American session will start with an April reading on Canadian building permits, followed by a weekly private survey on mortgage applications. Later in the day, an April reading on consumer credit is forecast to have a moderate increase on March’s $16.4 billion reading. Earnings announcement will include Brown Forman and Navistar International before the Wall Street opening.
Critical support in September bonds to start today is seen at 154-27 with more significant support seen down at 154-23. Critical support in September T-Notes is seen close in at 126-20 with more significant support seen down at 126-14. As indicated already we think the path of least resistance remains up and that “new highs for the move” will be seen even if the rate of gain is measured and hard-fought. In other words the bias is up but the absolute level of pricing is rather high for a set up where the US economy is growing and the Fed is desirous of moving rates away from a historical extreme.
We don’t see panic selling but we do expect to see more disappointment “selling” as there are a number of fear factors in the current headlines.
Expect significant two-sided volatility in all currencies over the coming 48 hours.
Given the high/low break since the late May high of $5.50 and the fact that open interest has generally risen on the last two weeks slide, it would appear as if some bargain-hunting buying is being seen on the current washout and that bodes well for a possible bottom above the $46 level. Unfortunately, negative charts and fear from the demand side of the equation leaves the market vulnerable to at least a temporary retest of levels below $46 in the coming days. The bulls need “Big” help from a large EIA crude stocks decline or the bears retain control.
While we leave the edge with the bull camp we also think that volatility is set to expand and that absolute price swings will become significant in the coming trading sessions. However, until weak US numbers recover, the UK election passes without a change in leadership and the technical condition in gold and silver flash extreme overbought conditions, the upward bias should control. Remain bullish as long as August gold holds above $1,280 and July silver holds above $17.28.
As we have been suggesting for weeks, we don’t see strong value in July copper until prices return to the bottom of the $2.50 to $2.60 trading range. In fact as long as negative economic vibes populate the headlines, there is no reason to expect a quick low in copper directly ahead. In fact a pattern of lower highs, partial risk-off in equities and lots of political uncertainty over the coming 48 hours gives the bear camp plenty of ammunition.
Weather markets have arrived and will be here for the foreseeable future. Friday’s report could have some data for both the bears and the bulls, but the market will be driven by the weather especially going into the upcoming weekend. If forecasters start to take moisture out of next week’s forecast, the market will blow right by the recent high of 404 and look to test the June 2016 high of 422 3/4. Traders may consider buying December Corn at 391 with an objective of 447.
November soybeans closed higher for the third day in a row, a feat not seen since May 1st to the 3rd. Friday’s report could be a negative surprise if South American production is raised again, and 2017-18 US ending stocks come in with a figure above 500 million bushels. Traders looking for a cheap bullish strategy for a weather scare should look at the November 1000/1100 call spread at 11 cents and also sell the November 860 put for 13 cents. Support for November soybeans is seen at 927 1/2 with 947 3/4 and 955 as resistance. Look for more up into USDA report.
July wheat closed above the 50 day moving average at 434 1/2 yesterday. The 100 day moving average (446 1/2) and the 200 day (447 1/4) are within reach, and a close above those levels prior to the report on Friday could spark further short covering. Weather in the northern Plains will be the key market driver, and it looks to be somewhat dry thru June 12th with possible “triple digit” heat this weekend. Some showers popped up late yesterday in eastern South Dakota but coverage was light. There was heavy volume of Minneapolis September 600 calls (30 cents) and 700 calls (7 cents) being bought yesterday. July wheat short-term buying support is at 434 1/2 with 452 1/4 and 461 as next resistance.
The sweeping key reversal could be a technical sign of a near-term top. We expect beef prices and cash markets to work lower into the fall but the short-term situation remains supportive. August cattle resistance is now at 127.00, with 122.22 and 120.92 as support. With a record spec net long position, breaking support could spark aggressive selling.
The market is still operating under the negative technical influence of the June 1st key reversal. If pork values continue in a short-term downtrend, this could pinch packer margins and slow movement through the pipeline. Close-in resistance for July hogs is at 81.87 and 82.27 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.
At near 90,000 bales in purchases daily, China mill buying demand for imports could weaken ahead of the new crop season. Crop weather looks favorable for a good start to the growing season and the conditions report this week showed the crop is already above average. Georgia cotton is rated 71% good/excellent compared with 47% as the 10-year average. July cotton technical indicators are very oversold. Resistance is at 77.31, with 71.97 as the next downside target.
Coffee now has a sizable net spec short position, so more indications of potential Brazilian frost this weekend could trigger a short-covering rebound. Unless there are clear signs that global demand is on the mend (such as consecutive daily ICE exchange stocks declines), coffee’s near-term upside potential may be limited at best. July coffee will have near-term resistance at 129.55 with critical close-in support at 125.25 and 124.75.
Lukewarm demand has been a longer-term problem for the cocoa market, but multi-year low prices may be encouraging commercials to step up to the buy side again. If recent heavy rainfall can negatively impact West African mid-crop output, cocoa prices should remain fairly well supported at these current levels. Near-term support for July cocoa is at 1920 while resistance is at 2022.
The news flow has been very one-sided in recent weeks and slowing Brazil production might be enough to spark some short-covering. With sugar prices falling 8.7% last week and with the 14 day relative strength index (RSI) below 30%, the market is extremely oversold. There is not a “game-changing” event on the horizon just yet, but stronger energy prices combined with additional bullish supply news could fuel a near-term recovery move. July sugar will have near-term support at 13.82 while resistance is at 14.76 and 15.11.