Many of the world’s currency, bond, equity, and commodity markets are simply thrashing around, up and down, creating misdirection, all designed to force market participants out of a good position or into a wrong position making risk management challenging. Currently, this type of strong misdirection market activity is highly dominant and will likely remain dominant for a period of one to two or more months.
Therefore, it is essential that one has professional assistance from multiple sources to navigate the world’s market complexities.
Capsule Overview – Near Term Expectations
- Commodity Index, $CRB – Slowly building a base before moving higher.
- Oil, $WTIC – Correcting bullish price move before moving higher.
- Cotton – Bullish.
- Dow, S&P 500, and NASDAQ Composite – Sideways consolidation before moving higher.
- Foreign Stock Markets – Varies by market, sideways consolidation or corrective period before moving higher.
- Soybeans – Sideways consolidation, support needs to hold at $9.80 to remain near term bullish.
- Corn – Bullish, support needs to hold at $3.91 to remain near term bullish.
- Wheat – Bullish, pushing through and holding $5.80 would make a statement.
- Rice – Price weakness a function of demand and planting expectations.
- U.S. Dollar – Bullish for a period, corrective period needed not required.
- 10-Year U.S. Treasury Yield – Defining a trading range.
The Week Ahead May 28, 2018
10-Year US Treasury Yield: For the week of May 21, 2018, the 10-Year US Treasury had a nice pullback of 4.25-percent to 2.93-percent. This is very supportive to overall global market dynamics. The 10-Year Treasury Yield is building a sideways trading range. For a multi-month period this market likely trades in an interest rate range of 3.3 percent on the upside and 2.7 percent on the downside. Market participants are anticipating a Fed Fund Rate increase of .25 percent at the next Federal Reserve Open Market Committee (FOMC) meeting June 12-13, 2018, and another likely increase at their September 25-26, 2018, meeting. (Charts A1-A4) Presently, I have no expectation of a rate increase at their December 2018 meeting. The Fed is positioning to maintain a balanced yield curve as the year progresses.Global governments and central banks continue positioning to prolong the business cycle for an extended period of two to three or more years.
U.S. Dollar Index: Bullish on European, emerging market and global uncertainties; a current corrective period desirable, not required. With the dollar index presently at 94.13 (Charts A5-A8) and off its low of 88.15, the index is in a slow determined corrective grind to the upside. The dollar has entered a possible one to two or more months of more strength than weakness with an upside potential target of 96 to 98 before returning to dominant downside trend. This is an extremely challenging market since the U.S. Dollar strength has negative economic consequences to frontier, emerging, and developing economies, so we will closely monitor this market and adjust expectations accordingly.
S&P 500: Sideways consolidation before moving higher. Prices need to hold above 2720 to regain momentum needed to retest previous highs of 2873. Prices falling through 2560 would be near term bearish, but market cleansing.The trend in this market remains up, but one should anticipate an additional one to two or more months of potentially stronger corrective activity, so exercise caution and at least consider the outside potential of a 20 percent correction from the high. Just let price action provide guidance until stronger momentum is regained. Note the collection of attached Equity Charts A14 to A28.
NASDAQ Composite Index: Just let price action provide guidance and be an active risk manager. The trend in this market is up, but be respectful of the dynamics of this market. This high visibility market where speculative interest, high frequency traders, passive investors, etc. dominate price action absorbs its energy and leadership from the likes of Facebook, Apple, Google, Amazon, Netflix, Microsoft, etc. These high tech giants will continue experiencing on-again and off-again headwinds on a number of different fronts extending beyond consumer privacy rights.
$WTIC Light Crude Oil: Correcting bullish price move before moving higher. This is a market in need of a pullback; said differently, this is a market out-of-balance with other global currency, bond, equity and commodity markets. It’s a market where rising prices are increasingly placing a drag or limiting global growth. Is the demand for oil waning? Not hardly. The summer months are the strongest demand months for the oil sector, and stimulus driven global growth is achieving its objective of maintaining global economic momentum and the demand for oil.Key supply concern: The Venezuelan economic, social, and political crisis has their country and oil sector near collapse. The current oil price correction is a time of opportunity as speculative and value investors scan not only the oil sector, but the commodity complex for speculative and value investments. An interesting array of factors from fundamentals, to global policy drivers, to social, economic, political, and military uncertainties keep this market at elevated levels and they do not appear to be losing their influence anytime soon.
CRB Commodity Index: “Buliding Bullish Base,” ongoing global stimulus driven growth, coupled with geopolitical concerns, appear to be near term supportive of the commodity sector. With ongoing global equities realigning with global currency, bond and commodity markets, near term the index needs to push through resistance at 205 (currently at 203.3). On the downside, the CRB Index needs to hold support at 185, otherwise, major across-the-board commodity weakness would likely emerge.
Webinar: May 31, 2018 Rice, Grains, Oilseeds, and Cotton https://bit.ly/2kwgznX
Description: International Economist Rachel Trego will present the new 2018/19 forecasts that USDA published for the major grains, oilseeds, and cotton. The presentation will include U.S. production, use, and exports, as well as global trends and developments with key competitors and markets. In addition, Ms. Trego will highlight data and analysis resources available from USDA and accessible on the FAS website. Time: May 31, 2018 3:00 PM in Central Time (US and Canada)
Bio: Rachel Trego is an international economist with the U.S. Department of Agriculture Foreign Agricultural Service. She is the team leader for food grains analysis within the Office of Global Analysis, responsible for analyzing the global wheat and rice markets and reporting on supply and demand and price information.
Registration Link: https://uaex.zoom.us/webinar/register/WN_wNhja_nKT9aurwPallc9Ig
Rice, Grain and Cotton Charts B1-B28 in Chart Book
Soybeans: Range bound and thrashing around is highly descriptive of this market. Reality is, this market has spent almost 4 months moving sideways without a bullish or bearish commitment, so we sit back and watch the price action. Soybean prices closing above $10.80 per bushel and holding gives the nod to the bullish outlook, and prices closing below $9.80 per bushel gives the nod to the bearish case and further price weakness to $9.47 per bushel and possibly lower to $9.01.
Corn: Remains bullish as long as prices can hold $3.91 per bushel. Holding above $3.91 per bushel opens the door to a potential price move to its June 2016 high of $4.39 per bushel and a possible secondary target of $4.83 per bushel. Corn ending the week-of May 28, 2018 below $3.91 per bushel opens the door to a possible decline to $3.64 per bushel.
Wheat: Wheat appears to be bullish to $5.83-per bushel or higher.
Long Grain Rice: Price weakness emerging as market participants are sniffing out the potential of planted 2018 U.S. long grain rice acreage exceeding the acreage figure released in the March 29, 2018, USDA Planting Intentions Report. Without a new demand source, fundamentals will weigh heavily on this market.
Cotton: Cotton prices remain bullishly sideways to up with the objective of moving to and possibly through the 89-cent area.
Timely Farm Bill Video:
Farm Bill Video: Dr. Keith Coble, Farm Bill Update “Putting the House Committee Farm Bill in Context” video produced May 17, 2018 http://www.deltafarmpress.com/marketing/bullish-base-building-equities-and-commodities. Dr. Keith Coble is a Giles Distinguished Professor and Head of the Agricultural Economics Department at Mississippi State University and former Chief Economist for the U.S. Senate Agriculture, Nutrition, and Forestry Committee and his research focus is on risk management, agricultural policy, and insurance.
Timely Rice Outlook Video:
UA Rice Webinar: USDA’s Nathan Childs on The 2018/19 U.S. and Global Rice Market Outlook—Production, Trade, Use, Stocks, and Prices, video produced May 24, 2018.
Description: Nathan Childs, Agricultural Economist, USDA’s Economic Research Service, presents the first official USDA global and U.S. rice market forecasts for 2018/19, including calendar year 2019 world rice trade. For the U.S., production, use, trade, stocks and price forecasts will be presented by class and for all rice. All rice country-specific and global supply and use forecasts will be presented as well, with an emphasis on major trading countries. The first forecasts for global trade for calendar 2019 will be presented. Factors driving these forecasts will be explained. Link: https://www.uaex.edu/farm-ranch/economics-marketing/food-agribusiness-webinars/
Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service. E-mail: [email protected]
Download Slide Show for charts and expanded details, Click Download Link