Global equity markets were mixed overnight with Chinese stocks showing strength in the wake of comments from the Chinese central bank suggesting that the Bank would leave policies in place to assist the economy. The Asian session started with a Chinese service sector PMI reading that came in slower than the prior month. The European session started with Italian service PMI readings that softened from the prior month while French composite service PMI readings were unchanged and German service sector PMI was also unchanged. The overall euro zone PMI services result was also unchanged while the UK services PMI readings declined. Capping off the European data flow was an improvement in euro zone retail sales on a month over month basis. North American trading session will present weekly chain store sales figures early on followed by the New York PMI index, factory orders and weekly EIA oil inventory statistics.
It is difficult to take control away from the bear camp given the markets interest in hovering near the recent spike lows. However a slight contraction in US factory orders later this morning and a continuation of geopolitical safe haven conditions could defuse the pace of the declines on the charts. On the other hand the markets expect to see a softer factory order reading and that could set the stage for a negative reaction to a slightly better-than-expected result. Some traders have even suggested that the Treasury market is in the process of factoring the next US rate hike with its five point slide but we doubt the Fed is poised to act quickly unless the next nonfarm payroll report brings upward revisions in past numbers and or a strong reading for June. Initial support is close in this morning at 152-27 in September bonds with a series of closes at 152-20 the next lower support zone. To throw off the bearish tilt that remains in place probably requires a price print back above 153-10 in September bonds. Initial support in September Notes is seen at 124-30 and then again at 124-24.
Typically the markets do not like uncertainty and the North Korean situation certainly fosters fresh geopolitical anxiety. With somewhat slack international scheduled data released overnight and US factory orders expected to be soft the environment to start today clearly favors the bear camp. Fortunately for the bull camp there does not appear to be a high level of anxiety and there also isn’t a high expectation that the FOMC meeting minutes will offer up anything surprising.
The Dollar has the benefit of Safe Haven and hopes of something hawkish from the Fed later today!
The crude oil market has started the new trading session under a bit of pressure with little in the way of solid support seen until the $45.92 level in the August crude contract. Initial resistance in the August crude oil contract is seen at $46.77 but an entrenched risk-off vibe from North Korea could produce a target this week of $45.
While the gold market might periodically derive safe haven support off the North Korean situation it might take evidence of a military response to North Korea to effectively pull gold out of the definitive slide of the last four weeks. Since the action in the dollar hasn’t been tightly correlated with gold price action of late the higher dollar action to start today is of limited interest to the gold trade. However with the dollar making a fresh five day high and approaching a critical pivot point up at 96.32 the currency impact on gold could transition into a definitive negative quickly. Initial and thin support is seen at $1218 and then at the May low of $1217.80. Pushed into the market we are a seller of rallies with a close monitoring of the US response of the North Korean missile test. September silver has already forged a fresh downside breakout with the next downside targeting seen at $15.87 from the December 2016 spike low.
With the initial range down move forging a four day low and September copper fresh off a three week rally of seven cents the market is vulnerable to further near term losses. Next downside pivot point support is seen at $2.6565 and then again at $2.6495. In order to shift the technical condition away from the bear camp probably requires a trade today back above $2.6915. In the event that LME copper stocks post another five digit inflow on Thursday that could set the market up for a slide all the way back down to the $2.60 level.
The second half July weather will help to determine the short-term trend and the short-term weather remains threatening for northern and western corn producers. December corn close-in buying support is at 395 and 390 1/2 with resistance at 409 and then 422 1/4. Consider buying small breaks.
There is no change in the outlook for the Dakotas and this should be enough to significantly dent yields. In addition, managed money traders built up an all-time record high 118,683 contract net short position going into the USDA reports last week which leaves the market in position to see increased buying if resistance is violated. November soybean buying support is at 975 and 959, with 1007 and 1022 as the next upside targets. Consider buying breaks. There is also stiff resistance at 991.
The acreage report (especially for spring wheat) should continue to support the wheat market as a whole. The trade will continue to focus on weather in the Northern Plains as the spring wheat crop is on the cusp of being a disaster. Close-in support for September wheat is at 543 3/4 followed by 527 1/2, with 572 1/4 and then 588 as next upside targets. Consider buying breaks.
If cash can trade steady to firm this week, the market is still poised for a strong recovery bounce which would be a selling opportunity as supply will become an increasing bearish force in July into a time frame when consumer demand tends to slip. August cattle selling resistance is at 118.55 and a 50% correction of the June break leaves key resistance at 120.52. Consider selling a recovery bounce to resistance. A resumption of the downtrend leaves 111.35 as next downside target.
The June 1st hog supply is already at a record high and 3.4% above last year, and also up 6.7% above June of 2015. However, pork cut-out values continue to advance. August hogs could see resistance develop near the 84.65 to 85.05 zone, with key support back at 82.70 and 82.10. Watch for signs of a significant peak soon.
The short-term technical action is bearish and a close below 67.12 for December cotton would leave 65.17 as next downside target. Close-in resistance is at 67.42 and 67.72. Consider selling a bounce.
The market seems to have the supply news to experience more than just a technical bounce. September coffee buying support is at 124.15 with resistance at 132.10 and 136.05. Consider buying a break.
The market is still struggling to absorb the huge Ivory Coast supply the market seems to have corrected much of the oversold status. Resistance for September Cocoa is at 1960 and 1996. Look for choppy to lower trade ahead with 1900 and 1878 as support.
Cheaper gas in Brazil could push millers to use more of the cane crop for sugar production and this helped to drive the market lower early Monday. The record spec net short position may have helped to support the buying. Trade sentiment may have just turned too bearish and a technically-fueled bounce is still possible. Near-term support in October sugar is at 13.56 and 13.36, with close-in resistance at 14.27 and 14.75 as key resistance.