« March 2017 | Main

April 2017 Archives

April 3, 2017

The Forgotten North

Monday, April 3, 2017

Today's Spotlight Market

The most recent meeting of the Bank of Canada ("BOC") was held on March 1, and the BOC elected to leave interest rates unchanged at 0.5%. The BOC noted that inflation was higher in January, at 2.1%, but they felt that was a temporary increase related to the introduction of carbon taxes in Alberta and Ontario. Canadian 4th quarter GDP also came in higher at 2.6%.


Fundamentals

While relations with Mexico have garnered the most attention in trade talks from the Trump administration in the United States, Canada is also a member of the North American Free Trade Agreement ("NAFTA"). Since the introduction of NAFTA, Canada has been a major automobile manufacturer and NAFTA has spawned the creation of an interconnected web of automobile manufacturing and parts supply between Canada, the United States, and Mexico. After the failed attempt to reform health care in the US Congress, the Trump administration has indicated that their next priority will be tax reform. One such proposal is a border adjustment tax. While the primary focus may be Mexico, there are always the possibilities of spillover for Canada. The Bank of Canada may well remain cautious before making any interest rate cuts or hikes until the negotiations over US tax reform are completed.

Technical Notes

Turning to the 3-month continuation chart of Canadian Dollar futures, we see some very volatile trading over the past 3 months. There has been a recent reversal of the sharp bearish trend, and the slope of the faster moving 20-day SMA is now serving as support. 14-day RSI, at 43.68, is in bearish, although not yet oversold, territory.

Dale Jennings, Commodity Analyst


April 4, 2017

Gold Solid on Manufacturing

Tuesday, April 4, 2017

Today's Spotlight Market

Gold futures have held steady around the 1250-1265 range recently, despite the rebound in the US Dollar Index. The metal started the week on a strong note after New York Fed President William Dudley said it made sense for the central bank to raise interest rates at a gradual pace during the year. After the March rate increase, this was welcomed by Gold bulls concerned the Fed could move more aggressively than initially thought.

Fundamentals

Gold also got a boost from a solid month of March from the manufacturing sector. Factories in Europe and much of Asia, led by China, posted a strong month of growth. The official Chinese Purchasing Managers' Index (PMI) rose to 51.8 in March, up from 51.6. This is the strongest showing in the index since April 2012. In Europe, HIS Markit's PMI for the Eurozone rose to a 6-year high of 56.2 in March. Following the strong employment numbers in the US, manufacturing growth could pave the way for inflation to creep into the global economy. The major concerns for manufacturers at the moment are the Brexit and protectionist overtures from the Trump administration. British manufacturing did lose some momentum last month, as export orders grew more slowly and inflation took a toll on UK consumers' pocketbooks. The Trump administration has talked a tough game to this point regarding tariffs and other protectionist policies, but virtually no specifics are known. US job data will be released this week, which will traders something to mull over. ADP payroll data will be release on Wednesday and non-farm payrolls will come out on Friday morning.

Technical Notes

Turning to the chart, we see the June gold contract trading near resistance at the 1265 level . If Gold can clear this hurdle, prices may test the 1300 level on the upside. Failure to do so could result in further range-bound trading between 1200-1300. Currently, the RSI is showing overbought levels, which may put some pressure on prices.

Rob Kurzatkowski, Senior Commodity Analyst


April 5, 2017

Soybean Rally Crushed By Bearish Planting Intentions

Wednesday, April 5, 2017

Today's Spotlight Market

Here are the actual figures from Friday's USDA reports:

U.S. Stockpiles as of March 1

Corn: 8.616 billion bushels (Actual) vs. 8.55 billion bushels (Estimate)

Soybeans: 1.735 billion bushels (Actual) vs. 1.68 billion bushels (Estimate)

Wheat: 1.655 billion bushels (Actual) vs. 1.62 billion bushels (Estimate)

Planted Acres

Corn: 89.996 million acres (USDA) vs. 91.03 million acres (Estimate)

Soybeans: 89.482 million acres (USDA) vs. 88.13 million acres (Estimate)

Wheat (All Wheat Varieties): 46.059 million acres (USDA) vs. 46.06 million acres (Estimate)

Fundamentals

This past Friday we had the release of the widely anticipated USDA Prospective Plantings report. While there were no huge surprises in the report, Traders were caught a bit off guard as to the potential planting intentions for Soybeans versus that for Corn. The USDA reported that U.S. producers expected to plant a whopping 89.482 million acres of Soybeans this spring, which were about 1.3 million acres above pre-report estimates and over 6 million more acres than last season. In contrast, U.S. Corn acreage is expected to fall just below 90 million acres which was at the lower end of the average forecast as well as over 4 million acres below 2016 totals. While most analysts expected higher Soybean and lower Corn plantings this year, very few expected that Soybean plantings would be nearly as large as Corn plantings especially with the Soybean vs. Corn price ratio declining since late last year. On top of this report, continued wet weather this spring, especially in the Southern regions, of the Corn and Soybean growing areas, could force producers away from Corn and shift to Soybeans if plantings are delayed. This could put further pressure on Soybean prices, especially if South American Soybean production estimates keep rising and are poised to gain additional export business once the harvest is completed. We are starting to see large speculative traders adding to existing short position in Soybeans although the net-short position is still rather modest. This leaves room for further speculative selling should further bearish fundamental news develop or if key support levels fail to hold.

Technical Notes

Looking at the daily chart for July Soybeans, we notice prices approaching a key support level at the August 2016 low of 940.25. We did notice that the downside momentum to accelerate once the previous support level near the 1000.00 level failed to hold as momentum based traders added to short position once 1000.00 was breached. While momentum is very weak as measured by the 14-day RSI, this indicator is now well within oversold territory with a current reading of 19.19. With the RSI nearing extreme oversold readings, the potential for a short-covering rally are not out of the question, particularly if we do have a successful test and bonce from the August 2016 lows. Near-term resistance is seen at the March 27 high at 989.00.

Mike Zarembski, Senior Commodity Analyst


April 7, 2017

Traders Anticipating "Solid" Payrolls Report

Friday, April 7, 2017

Today's Spotlight Market

The following are the average pre-report estimates for this morning's Non-farm Payrolls report:

Non-farm Payrolls: +180,000 estimate vs. 235,000 February
Unemployment Rate: 4.7% estimate vs. 4.7% February
Ave. Hourly Earnings: +0.3% estimate vs. +0.2% February
Ave. Workweek: 34.4 hours estimate vs. 34.4 hours February

Fundamentals

Market participants are once again expecting another "Goldilocks" payrolls report this morning, with an expected 180,000 jobs being created in February. While traders have scaled back their expectations from the 230,000 plus jobs that were created in January and February, there are some signs that a positive "surprise" could be in the works. First, we have the private sector employment report from payroll provider ADP, which is normally released on the Wednesday prior to the government payrolls report. Here ADP reported that U.S. private sector payrolls increased by 263,000 jobs, with the service sector accounting for 181,000 jobs. The widely watched manufacturing sector created 30,000 jobs according to ADP, which would be the 3rd consecutive month of jobs growth for the important employment sector. In addition, the most recent report on Initial Jobless Claims showed a decrease of 25,000 to a seasonally adjusted 234,000 for the week ending April 1, which was well below the 250,000 analysts were expecting. So while there is no 1-for-1 correlation between the ADP or Jobless Claims data and what the Bureau of Labor Statistics will report this morning, an upward "surprise" in the jobs data would not be out of the question.

Technical Notes

Looking at the daily continuation chart for 10-year Note Futures, we notice prices trading towards the upper bounds of the 4-month consolidation pattern where the market has traded within a relatively tight 3 ½ point range. Prices are currently holding just above the 20-day moving average (MA) but remain well below the widely watched 200-day MA which is currently hovering near the 128-00 price level. Trading volume has been fairly steady during the formation of the consolidation pattern, with the only real volume "spike" tied into the quarterly rollover. Momentum as measured by the 14-day RSI remains strong, but seems to have run into some headwinds of late, with a current reading of 62.74 as of this writing. Chart resistance is seen at the November 30 high of 125-26.5, with support seen at the December 15 low of 122-14.5.

Mike Zarembski, Senior Commodity Analyst


April 11, 2017

Will OPEC Cuts Fail on Shale?

Tuesday, April 11, 2017

Today's Spotlight Market

Crude Oil futures have been on a tear of late, driven by potentially tighter global output and geopolitical events. The first several months of the new administration had been relatively quiet on the geopolitical front, but several recent actions have Oil traders a bit on edge. The firing of Tomahawk missiles into a Syrian airbases suspected of taking part in a chemical attack on civilians caused Oil futures to move higher last week. The knee jerk reaction propelled prices, but relations with Russia may be a larger concern for traders.

Fundamentals

Prior to the airstrikes, the Trump administration had been accused of being too cozy with Russia. However, the military action has caused an escalation in rhetoric between the two superpowers, which threatens to undermine recent strides in relations between the US and Russia. While Syria is a relatively minor Oil producer, Russia overtook Saudi Arabia as the world's largest producer and the friction between countries could have trade implications. While OPEC has been compliant with production quotas, US production, namely shale, remains the big unknown. According to Baker Hughes, the US rig count rose by 10, which is the 12th consecutive weekly increase. The increase brought the total rig count up to 672, which is the highest it has been since September 2015.

Technical Notes

Turning to the chart, we see the May Crude Oil contract rising sharply since late March. Prices have broken through resistance at 52.50 and have tested minor resistance around the 54.00 level. There is significant resistance around the 55.00 mark. The RSI is severely overbought, which may hamper prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

April 12, 2017

A Disappointing Friday

Wednesday, April 12, 2017

Today's Spotlight Market

The non-farm payrolls for March came in much lower than anticipated. In March, 98,000 jobs were created, lower than the expected 180,000. January's job growth was reduced to 216.000 from 238,000 while February was reduced from 235,000 to a revised 219,000. The unemployment rate fell to 4.5% from 4.7% in February. Retail led job losses led with the loss of 30,000 retail trade jobs. Labor force participation remained the same at 63.0%.

Fundamentals

The non-farm payrolls number diverged sharply from the ADP number of 263,000 jobs. These surveys do use different methodology and the non-farm payrolls are revised twice while ADP does not issues revisions. The non-farm payrolls number can be revised quite drastically. The most famous example is from August of 2011 when the Bureau of Labor Statistics initially released a non-farms payroll figure of zero job growth. This figure was subsequently revised to 110,000 jobs created for August 2011. These revisions are issued in order to incorporate late arriving survey responses. Despite the initial shock of the low number of jobs created, the equity markets close basically flat on Friday. The Fed Futures also are still showing a 67% chance of a Fed rate hike in June. The return of winter and a snowstorm during the data collection period may have influenced the jobs figure for March.

Technical Notes

Turning to the 3-month continuation for the E-mini S&P, we see recent trading has been quite range bound. The 20-day and 50-day simple moving averages have converged with the 50-day SMA serving as support and the 20-day SMA providing resistance. 14-day RSI has also retreated from the 81.11 oversold level in late February to 46.74, which is neutral.

Dale Jennings, Commodity Analyst


April 13, 2017

Tension is Golden for Metal Traders

Thursday, April 13, 2017

Today's Spotlight Market

Geopolitical tension and outside market support have been a driving force behind Gold's recent rise. Last week's US air strikes on Syrian targets has created tension between the US and Russia. US Secretary of State Rex Tillerson was in Russia to try to smooth over relations between the two superpowers. Russian President Vladimir Putin, with no evidence, has claimed that the US is planning evidence implicating the Syrian government in using chemical weapons. The US has accused Russia in either being complicit with or oblivious to Syria's use of sarin gas on its people. This has triggered defensive buying of Gold.

Fundamentals

In addition to the tense relations between Russia and the US, North Korea has become increasingly belligerent of late, which likely has been a cause of concern for not only the US, but also neighboring China. The Trump administration has been attempting to leverage China with a better trade deal if they aid the US in reigning in North Korea. The US has participated in naval exercises with Japan near the Korean peninsula in a show of force, along with dispatching a strike group in the region.

Geopolitical risk is not the only driver of Gold. The global economy has shown increased signs of life, which has the potential to drive inflation. The weaker than expected March job numbers suggest that the Fed could push back rate hikes until later this year. Traders believe the central bank will raise rates another two times this year. The US Dollar Index has tumbled since last week. The greenback had been rebounding, but took a tumble after the weaker job numbers, further bolstering metal prices.

Technical Notes

Turning to the chart, we see the June Gold contract breaking through near-term resistance around the 1260 level and pushing toward the 1300 mark. Resistance at 1300 could be a major hurdle for the Gold market. Prices are trading above the 200-day moving average, which could be seen as bullish going forward. It is of interest to note that the momentum indicator is showing some bearish divergence from prices and the RSI.

Rob Kurzatkowski, Senior Commodity Analyst

April 14, 2017

Bond Prices Becoming Overbought?

Friday, April 14, 2017

Today's Spotlight Market

Both large and small speculators are favoring the short side of the Treasury Bond futures market according to the most recent Commitment of Traders report. For the reporting period ending April 4, the combined non-commercial and non-reportable position in Treasury bonds was a net-short 51,612 contracts, with large speculative accounts adding an additional 5,665 new short positions while small speculators reduced their short position by nearly 8,000 contacts during the same time period.

Fundamentals

Treasury Bond futures were already in a price recovery mode prior to this past Friday's rather disappointing Non-Farm Payrolls report, with only 98,000 new jobs created in March. While many analysts are pointing to "weather issues" that affected much of the east coast of the U.S. last month to account for the big miss on the jobs creation, one has to wonder why they did not account for this prior to making predictions prior to the report being released. Regardless, moving on, it does appear that March's data from the Bureau of Labor Statistics (BLS) probably was an anomaly tied into how the employment data is calculated by the BLS as other evidence, such as a 0.2% drop in the unemployment rate to 4.5% in March as well as the decline in the so called U-6 unemployment rate, which takes into account those who are marginally tied to the labor force including part-time employment, which fell to nearly a 9 ½ year low. So while it appears that Treasury Bond bulls currently have the upper hand in the market, unless both the employment and economic data continues to fall short of expectations and or we see global political tensions continue to escalate, it may be difficult for the Treasury Bond rally to continue without at least a modest price correction occurring in the not too distant future. While today is a market holiday in the U.S. for both equities, bonds and futures, we still have a slew of economic reports scheduled to be released this morning, including CPI, Retail Sales and Business Inventories. With markets closed today, any major surprises in the data will have to be played out on Sunday when the U.S. futures markets reopen, which could make for some interesting trading following the Easter Holiday.


Technical Notes

Looking at the daily continuation chart for Treasury Bond futures we notice prices currently trading near the upper boundary of the now nearly 5-month consolidation pattern that has formed following the steep sell-off from all-time highs made back in July of last year. For those traders taking a longer-term view of the market, we will note that prices made a near-term bottom last month very close to a 61.8% Fibonacci retracement of the rally from the major low made back in December 2013 to the contract highs of July 2016. The market is currently holding above the 20-day moving average, but still trails the longer-term 200 day moving average which is currently hovering just above the 159-00 price level. The 14-day RSI is approaching overbought levels with a current reading of 69.44. We see the next major resistance level at the November 15 high of 155-16, with chart support seen at the March 14 low of 145-26.

Mike Zarembski, Senior Commodity Analyst


April 19, 2017

Gold Leading Precious Metals Prices Higher

Wednesday, April 19, 2017

Today's Spotlight Market

One potential way that some traders look for clues as to the strength of the global economy is to compare the performance of Gold versus some of the more industrial of the precious metals, such as Platinum. The theory here is that during times of strong global growth, the demand for industrial commodities such as platinum will rise, while a commodity such as Gold, which has taken on the reputation as a "safe haven" asset will see demand lag. Conversely, during times of uncertainty, the demand for Gold should rise versus that for industrial commodities. For the past 12 months we have seen the price of Gold trade above that of Platinum in a range from a 150.00 Gold premium on the downside to nearly a 350.00 Gold premium on the upside. As of this writing we are seeing Gold trade near the upper boundary of the previous 12-month price range trading at a 313.50 premium to Platinum. This does tend to suggest that there is some "fear" in the market as investors and traders are moving funds into Gold at the expense of Platinum.

Fundamentals

Market participants are taking action regarding their concerns for the potential of political turmoil in many parts of the globe buy moving some assets towards so called "safe havens" such as the Precious Metals complex and in particular into Gold. The lead month June Gold futures are trading near the 1300.00 price level for the first time since November with upcoming elections in France, saber rattling on the Korean Peninsula and most recently a call by British Prime Minister Theresa May for snap elections is lending support for Gold. In addition to political concerns, we are seeing weakness once again in the value of the U.S. Dollar against a basket of major currencies, with the Cash US Dollar Index (DXY) once again trading below 100.00 and at its lowest levels so far in the month of April. A weaker Dollar is generally viewed as bullish for commodities including Gold. In addition, U.S. interest rates on the long end of the curve continue to decline from recent highs which add another bullish factor that is helping to support Gold prices. With the 1300.00 price level appearing to be some significant psychological resistance, a successful test of this price level could propel prices up towards the next major chart resistance areas between 1350.00 and 1375.00 especially if trend following commodity funds add to existing long positions should prices close above the 1300.00 price level. A look at the most recent Commitment of Trader's report shows that nearly 16,000 new net-long positions in Gold were added by non-commercial traders, during the reporting period ending April 11. This brings the net-position of large speculators and funds to just over 177,131 contracts. Ironically, smaller traders were cutting back on their long positions in Gold during the same time frame so it appears that the smaller trader and investor is still not convinced that the recent Gold price rally is sustainable.

Technical Notes

Looking at the daily chart for June Gold futures we notice that prices have rallied over $170 per ounce since a major low was made back in December of last year just above the 1100.00 price level. Prices are now trading above both the 20 and 200-day moving averages (MA) and it appears that the short-term 20-day MA is preparing to cross above the long-term 200-day MA. This cross over should it occur would generally be viewed as a bullish technical signal, which could spur fresh buying by trend following systems traders. We should note that the 14-day RSI has moved into overbought territory with a current reading of 72.8. So if psychological resistance at 1300.00 holds in the near-term, we could see some long-liquidation selling occur as weak Gold bulls liquidate long positions on a failure of a breakout above 1300.00. While 1300.00 remains strong resistance for the June futures, we see chart support at the March 10 low of 1198.00.

Mike Zarembski, Senior Commodity Analyst


April 21, 2017

Beef Prices Rally as Grilling Season Begins

Friday, April 21, 2017

Today's Spotlight Market

This afternoon, livestock traders will stay late after the close of trading as the USDA will release data for the monthly Cattle on Feed report due out at 2 pm Chicago time. Here are the average pre-report estimates for the three main categories covered in this report:

Placements (March 2017): 106.3% of last year
Marketings (March 2017): 109.2% of last year
On-Feed (April 1): 99.6% of last year

Fundamentals

Here in Chicago, we are finally ready to call an end to winter and begin to indulge in the fun activities of spring including getting the grill out of the garage and prepare for barbeque season. However, those tasty steaks and briskets will not come at bargain prices this season as strong retail demand for beef is encouraging meat packers to bid market ready Cattle prices higher. Cash market sources report that meat packers were paying $130 per hundredweight for Cattle in the southern Plains, a steep premium to the lead-month June Live Cattle futures which are currently trading near the 116.500 price level as of this writing. Wholesale box beef prices are running about $5 higher than last week which reflects the current strong demand for beef from retailers and restaurants. Grillers can take some solace that both pork and poultry prices are not seeing the strong increases like for beef so we may see grillers turning towards pork chops or chicken legs instead of steaks and burgers for their barbecue feasts this summer.

Technical Notes

Looking at the daily chart for June Live Cattle futures, we notice prices made a new contract high at 117.475 on Thursday, before some profit-taking selling from weak longs moved prices about a full point lower by the close of trading. However, the trade remains firmly in the bull camp with prices currently well above both the 20 and 200-day moving averages and the current $16 futures discount to cash adding support to the market. We do note that the 14-day RSI has moved into overbought territory with a current reading of 75.03, so we may be due for a near-term correction in prices, especially if we see cash prices start to retreat. However, the large futures to cash price discount may cushion the extent of any futures price correction. Thursday's high at 117.475 looks to be the new resistance level for the June futures, with chart support seen at the April 5 low of 108.675.

Mike Zarembski, Senior Commodity Analyst


April 25, 2017

It's a Snap!

Tuesday, April 25, 2017

Today's Spotlight Market

UK Prime Minister Theresa May shocked the financial markets when she announced a snap general election upon Parliament's return from the Easter Recess last week. While the Fixed Term Parliament Act was designed to prevent the early calling of elections, a 2/3 majority vote in Parliament can supersede the Act, and Parliament voted overwhelmingly to approve a UK general election on June 8, 2017.

Fundamentals

This completely unexpected move shocked the financial markets as the British Pound rallied and the FTSE 100 sold off. Looking at the polls now, Theresa May's Conservative Party has a large lead, and many political observers expect her to increase her majority in Parliament. This would give the Prime Minister more flexibility during the Brexit negotiations, as she could afford to have some Conservative defections during some of the difficult Brexit votes. However, there are a couple of caveats. This will be the 4th consecutive year with major UK elections. 2014 saw the Scottish referendum, the general election of 2015, and the 2016 EU referendum. Also, observers of UK politics will always point out the early general election of 1974, when Conservative UK Prime Minister Ted Heath called an early general election and lost his majority to the opposition Labour Party.

Technical Notes

The tremendous rally in the Pound caused the Pound to break through the 200-day SMA, changing a mild bullish pattern into a stronger one. The slope of the fast moving 20-day SMA is now on a sharp upturn as well. Resistance can now be found around the 1.2900 level while support is near the early March 1.2150 levels. 14-day RSI at 66.49 is in mildly bullish territory.

Dale Jennings, Commodity Analyst