Global equity markets were mostly higher overnight with the exception the Hang Seng as the markets weren’t undermined by the surprise failure to get a “government” in the UK. Overnight May Chinese CPI saw as expected uptick from April’s 1.2% year-over-year rate, while the May Chinese PPI saw a moderate downtick from April’s 6.4% year-over-year rate. The European session started out with the April German trade balance that showed a slight contraction. April UK industrial production saw slight gains with April UK manufacturing production also managing a slight uptick. The North American session will start out with May Canadian employment figures, with their unemployment rate expected to uptick from April’s 6.5% reading while there is a moderate increase in their net employment. April US wholesale inventories are forecast to uptick from March’s -0.3% reading and climb into positive territory. Earnings announcement will include Straight Path Communications before the Wall Street opening.
Clearly bonds were overdone fundamentally and technically into this week’s highs but it is likely that the 153-28 level is set to provide solid support for prices today in September bonds. In fact both the UK government situation and the US political war look to keep geopolitical headwinds in place into next week and that should cushion bond and note prices. As indicated already the totality of US scheduled data of the past two weeks has fostered concern that US growth momentum is suspect again and that combined with calls for the Fed to raise its inflation target should make this week’s lows fundamental support. Similar fundamental and technical support in September Notes is seen at 126-00. Pushed into the market we would be a buyer of 1/2 point breaks in Bonds and a buyer of 12 tick breaks in Notes.
The bulls have come through political headwinds this week with their case intact.
The Dollar looks to continue chop higher today as alternative currencies pave the way for dollar strength.
While the July crude oil contract managed to reject some of the significant losses in the prior trading session, one can hardly call the current chart structure optimistic. In fact unless there is a definitive supply-side wrinkle and a quick improvement in global energy demand prospects, a lower low for the week should be expected. Critical resistance in the July crude oil contract today is seen at $46.11 and obviously initial support is seen at the prior sessions low $45.20.
The breakout down and continued weakness in gold and silver has to worry the bulls as two key geopolitical issues (the UK election & US obstruction of Justice) have not been fully resolved and yet prices are in a liquidation track. At this point we suspect the flap over the UK election will moderate if the Prime Minister manages to stay on with a Minority government. Furthermore one might have expected gold and silver to have drafted sustained support from the prospect of serious legal problems for the Trump administration but instead they haven’t. In our opinion, the testimony from Thursday provides the Democrats with enough leads to pursue the issue for a moderate period of time but the UK situation appears to be set to lose momentum. While gold might see support develop around the $1275 level, the inability to hold above $1270 could set the liquidation tide in motion again.
One has to take the action in the last 24 hours to heart, as copper once again showed its positive sensitivity to any favorable Chinese news. However global economic conditions and demand hopes for copper are not exactly stellar and that could make an overdone near term extension on the upside an opportunity to get short. While we think $2.60 is an expensive level, we can’t deny a couple days of trade up towards the $2.65 level.
The weather will still be the focal point for the market, but the USDA could tweak the new crop yields as they have in the past. Initial pullback support for December corn is at 399 1/2 to 397 1/4. Look for a test of 422 3/4 with potential to trade up to 447. Next resistance is at 413.
With all the bearish news of late, the market has pushed its way back on the coattails of wheat and corn and if the USDA does not give the bear camp something in today’s report, more short covering above the 50 day (952 1/4) for November soybeans is likely. If the market breaks from a bearishly-read “algo” flush from the report, traders could look to buy the November 1000/1100 call spread at 11 cents and consider selling out of the money puts. Close-in support for November soybeans is seen at 937 1/4 and 933 1/4 with 955 and 961 as next resistance.
July wheat closed above the 100 day (446 1/4) and the 200 day (446 3/4) on Thursday with the next target the old high at 461 1/2. Pullback support in July wheat is seen at 442 1/2 followed by 438 1/2.
Keep in mind, the COT report last week showed the “combined” spec and fund net long position at a new record high level so the market is extremely overbought. The sweeping key reversal combined with the outlook for increasing supply into the third quarter is a potential bearish set-up. If August cattle closes under 126.05, it will represent a weekly key reversal. Resistance is at 125.30, with 118.80 and 116.87 as downside targets.
Close-in support for July hogs is at 80.95 and 80.30, with 83.52 and 84.77 as next resistance. The short-term trend is up and the surge in pork values to the highest since 2014 is a bullish development. August hog support is at 80.27 with 83.70 as next target.
From an extreme oversold technical condition, the market is vulnerable to a bounce, especially if there is neutral or positive news from the USDA today. Close-in support for July cotton is at 75.90 with key resistance points up at 78.40 and 80.03. A move through support would leave 71.97 as a longer-term downside target.
If risk sentiment shows some improvement going into the weekend, coffee could lift clear of its recent lows and post a positive weekly result. Questionable weather ahead could spark some short-covering. July coffee will have near-term support at 125.25 and 123.70 with 130.05 and 131.55 as resistance.
If the Pound can put together a sizable rebound, cocoa could see a bounce but the weak action yesterday leaves a tilt to the bears today. Uptrend channel support comes in at 1931 and a move below this level will damage the charts. Resistance for July cocoa is at 2022.
Weather issues in Brazil’s Center-South region have helped to underpin sugar prices well above last week’s low for the move. If risk sentiment can improve, sugar could see a temporary bounce. July sugar will have near-term support at 13.98 with resistance is at 14.76 and 15.11.