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Global reflation efforts – ‘Slowly bearing fruit”

Row of round cotton modules shows production of Arkansas field
Dozens of round modules grace the edge of a cotton field near Portland, Ark., in 2016.
Bullish view of Euro could provide softness for dollar, help for U.S. commodity prices.

What to expect from the markets this week, May 15, 2017

Market “Near Term” Snap Shot

10-year Treasury Yield: Slightly bullish – lower yield
S&P 500: Consolidating before moving higher
Global Equities: Some consolidating gains; others near term bullish
U.S. Dollar: Sideways - More weakness than strength
Oil: Dangerously weak prices; Inability to penetrate upside price resistance could result in another leg down for oil prices and aggregate commodity price weakness
Commodity Index: Good news: Near term low in place; Important question: Will low hold?
Soybeans, Corn and Wheat: Basing Continues – Bias: Cautiously Bullish, $CRB commodity index weakness a major indicator of grain price challenges
Rice: Slightly bullish bias  
Cotton: 84-cent-plus price objective remains
Should one be optimistic or pessimistic about the week beginning May 15, 2017?

The Optimist Says 

Global reflation efforts by the world’s governments and central banks are bearing fruit. Near term what does that mean?

·         Given the outcome of May 7 French elections global investors are presently bullish the Euro providing the dollar a period of softness, which has the potential of being supportive of the U.S. commodity sector.

·         Bonds: The 10-year Treasury Yield near term or for a period has the potential to be slightly bullish, or lower yield or interest rate, while U.S. equities work through their overbought condition. This is also supportive of the U.S. commodity sector given today’s global economic, social and political dynamics. 

·         The U.S. S&P 500 equity market near term needs to consolidate gains, though overpriced this market will likely attract major global investment interest beyond this consolidation period.

·         Global reflation efforts can be seen bearing fruit through the building bullish nature of the world’s global equity markets.

·         Commodities: As global equity markets build momentum then many commodity market prices will advance as global and speculative demand lift these presently depressed market prices.   

The Pessimist Says

The firing of the FBI Director James Comey raised the level of market uncertainty for the week beginning May 15, 2017, which is to be expected. The firing of the FBI director is no small event and market participants need reassurance the event will not lead to elevated U.S. and global market risk.

It is certainly no secret that market participants are increasingly concerned about the lack of implementation of elevated levels of fiscal, monetary, trade and regulatory policy to enhance U.S. business efficiencies and profitability. What was once expected the first half of 2017 is now more realistically expected later this year or 2018. 

U.S. business sector has been constrained by building economic paralysis due to increasingly elevated levels of social and entitlement programs requiring increasing levels of unsustainable debt. This is an even bigger problem in other developed countries.   

In addition to the following “Expanded near Term Market Considerations Week Beginning May 15, 2017” (To see this week’s Market price consideration charts, click on

This Week’s Select Summary Considerations:

•      10-Year US Treasury Yield:

•      We enter the week slightly bullish with a potentially lower yield

•      Event Risk Concerns will likely take yields lower to 2 or below over the next 1 to 2-plus months

•      US Dollar Index:

•      For a period: The dollar should have more weakness than strength against the Euro 

•      Big Picture: The dollar has a bullish bias given global economic, social, political and military challenges

•      Unless Middle East, North Korean and/or European events start to dominate market participant decisions for a period, then we are still DEFINING a trading range 95 -104

•      CRB Index:

•      A cautionary note – This index is flashing red implying increasing domestic and global economic, social, and political uncertainties as DEFLATIONARY FORCES PUNISH THE COMMODITY SECTOR

•      With oil price correcting and geopolitical uncertainties consolidating for lack of a better descriptive phrase the $CRB certainly appears to be in search of lower lows

•      The bigger question at this point, which commodities are facing the strongest headwinds

•      $WTIC Light Crude Oil:

•      Fundamentals finally weighing heavy on oil prices, oil prices now retesting resistance, if resistance holds then prices likely revisit the 45 area or lower

•      That said, remain focused on the bigger “Geopolitical Picture and Building Military Friction”

•      Sustained oil prices below $50 presents interesting macro challenges and raises global economic momentum concerns

•      Additional price weakness from current levels will likely be problematic for the commodity sector

•      Soybeans:

•      Price floor likely in place, painful basing process underway

•      Secondary Consideration: Continued weakness in the commodity index likely a function of Fiscal and Monetary Policy and Global Economic Uncertainties, which could translate into current price action correcting downside move before making a final price low

•      Simply stated watch the price action to define soybean price dynamics

•      Corn:

•      Basing period underway with upward price momentum expected

•      Cautionary Note: Additional oil price weakness could possibly be problematic for corn prices

•      Long Grain Rice:

•      Slight bullish bias, but near term weather and aggregate commodity market price direction likely define price strength or weakness   

•      This is a highly complex market with an array of factors impacting price from 2016/2017 fundamentals; 2017 acreage, production and quality uncertainties; present underlying commodity sector weakness; problematic global economic momentum, geopolitical uncertainties, and/or global agronomic outlook

•      Cotton:

•      Geopolitical uncertainties remain high, so caution is advised

•      That said, complex price action underway with a bullish price objective into the 84-cent-plus area still remains in play

•      Wheat:

•      Caution is advised for all markets due to geopolitical risk uncertainty

•      Bullish price potential to $4.71 remains a possibility

•      SPY SPDR S&P 500 ETF:

•      Caution - Consolidate for a period

•      Allow price action to unfold

•      Trend remains up

•      QQQ NASDAQ Power Shares:

•      Remains bullish for a short period

•      Allow price action to unfold

•      Trend remains up

•      EFA iShares ETF - Global Equities Excluding U.S. and Canada:

•      Trend remains up

•      EEM iShares ETF, Emerging Market Equities:

•      Global events need to be continually digested

•      Entering a cautionary period

•      Trend remains up

Dr. Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, Division of Agriculture, University of Arkansas System. E-mail: [email protected]



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