Global equities were mostly positive overnight with the exceptions the TOPIX, RTS and MICEX trading weaker. The Asian session started out with a first quarter reading on Japanese GDP that was expected to show a modest increase but instead the measure showed a weaker growth rate. The highlight of the Asian session came from a May reading on the Chinese trade balance that showed gains for both exports and imports. The European session started with April German industrial production that bested expectations. First quarter Euro zone GDP was expected to hold steady but instead it was revised higher and weighed in at the fastest growth rate in 2 years! However, the highlight for European trading will be the results of the latest European Central Bank monetary policy meeting. While no change in rates or policy is expected, post-meeting comments by ECB President Draghi will be scrutinized by the market. The North American session will start out with May Canadian housing starts which are forecast to have a modest downtick from April’s reading. A weekly reading on initial jobless claims is expected to have a moderate downtick from the previous 248,000 reading. Former FBI Director Comey will begin his congressional testimony during mid-morning US trading hours. After the close, the first exit polls for the UK Parliamentary election will be released at 4 PM CDT (9 PM GMT). Earning announcement will include J M Smucker and Vail Reports before the Wall Street opening.
The failure to hold consolidation low support at 154-08 in September bonds gives the bear camp the initial technical edge. As indicated already it appears as if geopolitical fires are moderating and that the markets might be presented with a slightly upbeat result from the weekly claims data and that suggests the fundamentals also favor the bear camp. Near term downside targeting in September bonds is seen at 153-28 with initial downside targeting in September notes seen at 126-07. We doubt the bull trend is completely reversed but the bull case has been temporarily reversed.
Conditions have improved buy breaks off testimony and use tight stops.
The Dollar looks to chop higher today through the FBI Director testimony.
Into this week’s lows, the July crude oil contract was trading more than $6 a barrel below the late May high and down $13 from the 2017 high, and that would seem to factor in ongoing US supply building but current pricing probably would not include evidence of producer cheating on production cut promises. However, this week’s crude oil stocks build came after nearly 2 months of weekly declines and OPEC has countered a large portion of US production increases with its production restraint agreement. Adding into this week’s liquidation washout is a higher US production target estimate from the EIA, and for that reason we can’t argue against a return to the early May low down around $44 in July crude oil. Initial support below the market is seen at $45.17, and the top of the near term range is probably seen at $46.26.
Despite the corrective action we are not ready to call for an end to the upward bid in the gold and silver markets. As mentioned already, the safe haven stories are still plentiful but it does appear as if the UK situation will die down without a major anxiety event. Therefore the gold and silver bulls have to hope that prices can benefit from the US congressional testimony of the former FBI director early on. While the questioning and testimony of the FBI director might not become a major issue, if there are claims of obstruction of justice by the President that could rekindle impeachment talk and that could spark a rather significant safe haven buying wave in gold and silver. In the end our gut tells us that safe haven sentiment is waning and that longs should consider banking profits or tightening profit stops early today. Uptrend channel support today in August gold is seen down at $1283.80 with a potentially significant pivot point seen down at $1279.20. Near term uptrend channel support in July silver today is seen at $17.49, with a potentially significant pivot point seen down at $17.39.
The sharp recovery this morning is clearly the result of hope that the Chinese economy is set to improve in the wake of rising imports and exports. In fact, hope for improved Chinese copper demand has overcome somewhat mixed Chinese copper sector import figures. We also think that the copper market is benefiting from a slight tempering of global geopolitical fires. With the hook up action this morning we can’t argue against a near term test of $2.60 but we would not suggest that buyers chase this market higher with buy orders.
A close above 404 for December corn would leave 413 3/4, 422 3/4 and 447 1/4 as the next upside targets. Consider buying futures or calls on a minor correction.
June weather is not normally a market driver but wheat and corn issues plus the spec short position suggest that another weak of harsh weather could support. The report on Friday is probably keeping what bullish traders that are left on the sidelines for now. Larger South American production and 2017-18 US ending stocks that could come in above 500 million bushels continue to cast a long shadow over the market. Close-in support for November soybeans is seen at 935 3/4 with 947 3/4 and 955 as resistance. Look for more up into USDA report.
July wheat tested the 100 day (446 1/2) and the 200 day (447) moving averages yesterday, but could not close above them. A close above these averages should spark further short covering for a test of the early May high at 461 1/2. The first level of support in July wheat is at 439 1/4 followed by 432 3/4. Look for a continued advance with 452 1/4 and 461 as next resistance.
The sweeping key reversal combined with the outlook for increasing supply into the third quarter is a potential bearish set-up. In order to confirm a peak, the beef market will need to begin to push lower. August cattle resistance is now at 125.85 and 127.00, with 118.80 and 116.87 as downside targets.
Pork values need to see a short-term downtrend in order to conclude that the export flow may be slowing. Declining pork values could pinch packer margins and slow movement through the pipeline. Close-in resistance for July hogs is at 81.90 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.
From an extreme oversold technical condition, the market is vulnerable to a bounce but the fundamental news flow remains bearish. Traders will monitor the weekly export sales data today for any evidence of cancellations from India or China. July cotton resistance is at 77.31 and 77.72, with 71.97 as the next downside target.
Coffee is near the front of the line of commodities that would benefit from stronger outside markets and risk sentiment, as sluggish global demand has now overshadowed what still remains a bullish near-term supply outlook. July coffee will have near-term support at 125.25 and 123.60, with resistance at 130.00 and 131.50.
Ghana is looking less and less likely to reach the ICCO’s production forecast of 950,000 tonnes. Near-term support for July cocoa is at 1927 while resistance is at 2005. Forced to a conclusion, look for jump to 2172.
The market may see new delays for this season’s Brazilian harvest as rain is in the forecast for the Center-South region over the next week. If risk sentiment improves after today’s events are digested by the market, sugar prices should continue to grind to the upside going into the weekend. July sugar will have near-term support at 13.80 while resistance is at 14.76 and 15.11.