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Weekly Futures Market Summary Apr 18.22

BONDS:

Apparently the Treasury markets saw last Thursday’s mixed US scheduled report slate as bearish. On the other hand, hawkish ECB comments, recent central bank rate hikes and in particular comments from the Fed’s Waller indicating the need for “fast rate hikes” clearly keeps fundamental pressure in place. While treasury prices have rebounded from the latest spike down to contract low with early action this week, fundamental and technical considerations remain in favor of the bear camp. In fact, in the most recent COT positioning report spec and fund positions combined were still net long 5,274 contracts with the net long rivaling the highest net spec and fund long since January 2018! Bonds positioning in the Commitments of Traders for the week ending April 12th showed Non-Commercial & Non-Reportable traders are net long 5,274 contracts after net buying 4,774 contracts. T-Notes positioning showed Non-Commercial & Non-Reportable traders net bought 36,769 contracts and are now net short 497,511 contracts.

CURRENCIES:

While the Dollar showed significant two-sided volatility in the first half of the trade today, the bull camp ultimately gained control. We think the brunt of the gains in the Dollar came from an upside breakout in US Treasury yields as US scheduled data favored the bear camp. While the June Dollar index “did not” post a new contract high at the start of this week, the index remained in a very positive technical posture. From a fundamental perspective, the dollar remained in vogue off the widely embraced idea that the US Fed will raise rates quicker than other large economies, with the magnitude of higher rate talk expanding daily. Some Dollar bulls suggest that under “deflation” and “inflation” the dollar remains the place to be. The Commitments of Traders report for the week ending April 12th showed Dollar Non-Commercial & Non-Reportable traders are net long 36,042 contracts after net buying 858 contracts.

With the Yen gapping lower to start this week and the currency unable to hold a “bounce” following supportive comments from a Japanese central bank policy maker, the trade is fully embracing the bear case. Furthermore, with reports of snarled Chinese port activity, fears of recession from rising rates, the bear camp in the Yen has a firm fundamental grip. While the Swiss franc aggressively rejected a spike down move and respected the early March spike down low early this week, the currency is merely exhibiting a temporary short-term oversold balancing bounce action. In fact, with chatter suggesting the EU could enforce a complete ban on Russian energy (which could spark recession in Europe) and the war intensifying, the path of least resistance in the Swiss franc remains down.

STOCKS:

Clearly US equity markets were undermined late last week by the latest upside breakout in US interest rates. Cushioning the market was strength in health care shares and favorable earnings from Wells Fargo. In the bear’s camp is the lack of tech sector support in the wake of the Twitter build and a softening in growth shares. While some markets were closed for the Easter holiday, global equity markets early this week were mixed with Asian stocks lower and European stocks fighting into marginally higher ground. However, with a fresh upside breakout in US treasury yields early on and news from the war front producing intensified fighting, fundamental influences favor the bear camp. In fact, many foreign central banks have joined the US in attempting to jawbone inflation fears lower and are also talking up even more rate hikes ahead.

S&P and NASDAQ charts, but that is unlikely to prevent further declines to key consolidation support. Fortunately for the bull camp, the most recent positioning report in the Dow futures showed a “net short” which could help June Dow futures respect critical consolidation support. Dow Jones $5 positioning in the Commitments of Traders for the week ending April 12th showed Non-Commercial & Non-Reportable traders are net short 23,570 contracts after net selling 5,641 contracts. With the Twitter board battling the Musk takeover effort with a classic poison pill, a portion of the bullish buzz for the tech leaning NASDAQ is lost. The April 12th Commitments of Traders report showed Nasdaq Mini Non-Commercial & Non-Reportable traders were net short 310 contracts after decreasing their short position by 26,227 contracts.

GOLD, SILVER & PLATINUM:

While some press outlets labeled the sharp rally in gold at the start of this week as the result of “deflation”, the inflation set up is very broad and strengthening. Unfortunately for the bull camp in gold and silver, US treasury yields have broken out to the upside again, the dollar is stronger and energy prices are slightly lower to start. Last week, gold ETF holdings increased by 507,766 ounces to finish the week up 9% year-to-date! Silver ETF holdings last week reduced their holdings by 2.5 million ounces, but those holdings remain 1.5% higher on the year. While the primary headline coverage has not presented views that Chinese lockdowns are rekindling widespread supply chain problems, evidence is stacking up in favor of further downstream price shocks.

Palladium positioning in the Commitments of Traders for the week ending April 12th showed Managed Money traders are net short 382 contracts after net selling 58 contracts. Non-Commercial & Non-Reportable traders were net short 1,396 contracts after decreasing their short position by 41 contracts. Last week platinum ETF holdings increased by 22,913 ounces, but holdings year-to-date are down a significant 4.4%. In short, platinum interest remains absent, and platinum needs large price moves in palladium to lead platinum prices in a sustained direction. The Commitments of Traders report for the week ending April 12th showed Platinum Managed Money traders net sold 5,735 contracts which moved them from a net long to a net short position of 102 contracts. Non-Commercial & Non-Reportable traders are net long 13,623 contracts after net selling 4,601 contracts.

COPPER:

Apparently, mostly positive Chinese economic data for March released at the start of this week has provided optimistic copper demand expectations. However, the supply side also provides support with Shanghai copper stocks posting their 4th decline in 5 weeks last week and registering the lowest stocks reading since January 28th. While the May copper contract since the last COT report calculation traded $0.05 higher at the start of this week, the net spec and fund long in copper remains very modest relative to the last 2 years. The April 12th Commitments of Traders report showed Copper Managed Money traders were net long 28,686 contracts after decreasing their long position by 13,314 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 13,615 contracts to a net long 30,461 contracts.

ENERGY COMPLEX:

While the June crude oil contract did not hold at new high for the move early this week, the charts present a positive argument for the bull camp. Fresh developments favoring the bull camp include a decline in crude oil global floating storage of 1.08 million barrels last week, better Chinese GDP readings and growing expectations of a complete EU ban of Russian oil. It should be noted that Asian Pacific floating storage of oil declined last week by 1.7%, with European floating storage up 26% (preparing for further sanctions) to a noted supply holding in Europe of 8.2 million barrels. Apparently, the trade is discounting the threat of slowing Chinese demand because of overnight news, but perhaps the bull camp is instead embracing news of curtailed Libyan output (from protests). In fact, Libya has indicated it will close its biggest oil field and may close other facilities because of protest inspired disruptions.

Unlike the petroleum markets, the natural gas market has held a significant upside breakout at the start of this week. As indicated in the petroleum market coverage, the trade has increased the potential for a complete EU ban of Russian energy and Chinese energy demand has been indirectly lifted by reports of exploding coal prices in China resulting from the inability to import enough coal due to lockdowns at ports. While import flows of gas are not tightly correlated with Chinese electric power production, it should be noted that Chinese March power output increased by 0.2%. News that natural gas deliveries in the US to export terminals jumped again, confirms US supply will continue to tighten relative to history off European attempts to rebuild storage supply.

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BEANS:

Argentine truckers agreed last Thursday night to call off a strike that had paralyzed grain transport in the country since last Monday. However, strong crush demand and a continued surge in wheat and corn prices helped to support. Outside market forces carried a more negative tilt on Thursday with the strong gains in the US dollar, but the strength in crude oil continued to support the soybean oil market. On top of the weekly sales data, exporters announced the sale of 132,000 tonnes of US soybeans sold to China. China will sell 500,000 tonnes of imported soybeans from its state reserves on April 22, the National Grain Trade Center said. The sale is aimed at alleviating tight supply in the domestic market.

CORN:

July corn has posted a new contract high for six sessions in a row and this leaves corn technically overbought and vulnerable to a correction. However, demand indicators remain very strong and the Ukraine situation has not improved and this has supported continued strong buying. Relative strength is near 84, and slow stochastics are at 95 and 94. Export sales came in better than expected, and traders expect next week’s sales should also be strong after China purchases in recent days. Strong gains in the crude oil market also suggests good demand ahead from the ethanol industry. For the month of March, China imported 2.41 million tonnes of corn, up 25% from last year.

WHEAT:

The Ukraine situation continues and the US weather remains threatening. Russia wheat export prices rose last week as demand has remained strong and China is an active importer. July wheat closed lower on the session last Thursday after a bounce to the highest level since March 22. Talk of the overbought condition of the market plus a sharp rally in the US dollar were seen as negative factors. Short-term dryness in the southern Plains plus a lack of progress in the Ukraine/Russia war are factors which provided underlying support. China sold 531,469 tonnes of wheat, or 96.43% of the total offer, at an auction of state reserves on April 13. Sales may be an attempt to fight inflation.

HOGS:

June hogs closed moderately higher on the session last Thursday and up sharply from the lows. Sluggish export sales plus demand fears are factors which might limit gains. The USDA pork cutout, released after the close on Thursday, came in at $106.27, up 12 cents from Wednesday and up from $101.01 the previous week. China imported just 140,000 tons of pork for the month of March, down 70% from a year ago. Cumulative imports have reached 420,000 tons, down 64.2% from last year’s pace. The CME Lean Hog Index as of April 12 was at $99.19, up from 99.10 the previous session but down from 101.08 the previous week.

CATTLE:

The short-term fundamentals are mixed but the discount of futures to the cash might give the bulls a slight edge. This could help the market find good support on set-backs. The USDA boxed beef cutout was down 59 cents at mid-session yesterday and closed 50 cents lower at $271.86. This was up from $271.40 the previous week. Cash live cattle trade was mostly quiet on Thursday, but prices continued their higher trend for the week. The 5-day, 5-area weighted average prices as of Thursday was 140.66, up from 138.69 last week. June cattle opened near unchanged last Thursday but the market closed lower on the session. Some choppy trade in the beef market has traders a bit concerned with demand, but demand seems to be strong enough to support a firm tone in the cash market.

COCOA:

While cocoa continues to be pressured by negative global risk sentiment, the market continues to receive bullish supply/demand developments that have underpinned prices well above their early April lows. If risk appetites can regain a stronger tone, cocoa can extend a recovery move early this week. July cocoa found early strength and shook off a midsession pullback as it finished Thursday’s inside-day session with a mild gain. For the week, however, July cocoa finished with a loss of 38 points (down 1.4%) which broke a 3-week winning streak.

COFFEE:

Coffee’s 3-day losing streak has taken prices nearly 14.00 cents (down 5.9%) below last Tuesday’s 6-week high. The market continues to have a bullish supply outlook, however, and that can help coffee prices find their footing before they retest their late March lows. July coffee found early support, but turned sharply to the downside at midsession and reached a 2-week low before finishing Thursday’s trading session with a moderate loss. For the week, July coffee finished with a loss of 7.80 cents (down 3.4%) which broke a 3-week winning streak and was a negative weekly reversal.

COTTON:

There was still no confirmation of the key reversal from an 11 year peak on Wednesday at the start of this week, but with the overbought condition and volatile outside market forces, we can’t rule out a short-term correction in the cotton market. July cotton will need to see selling pressure under 139.34 in order to confirm a short-term peak. News that India will allow duty-free imports in order to offset production shortfalls in the country helped to provide support. Domestic prices in India have hit record highs due to the drop in production. There is almost no rain in the five day forecast for West Texas with some chances of less than 1/10 of an inch. The 6-10 day forecast models show normal to above normal precipitation for the region with above normal temperatures.

SUGAR:

On Wednesday, July sugar experienced a sweeping key reversal from a multi-year high and an extremely overbought level. On Thursday, the market experienced follow-through selling below Wednesday’s low to confirm the key reversal and that should keep sugar on the defensive coming out of the holiday weekend. July sugar was unable to hold onto moderate early gains as it came under pressure late in the day to finish Thursday’s trading with a mild loss. For the holiday-shortened week, July sugar finished with a loss of 24 ticks (down 1.2%) which was a third negative weekly result over the past 5 weeks.

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