The Federal Reserve in the November 2, 2017 Federal Open Market Committee statement indicated that the U.S. economy continues to rise at a solid rate meeting growth expectations.

“The committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation, on a 12-month basis, is expected to remain somewhat below 2 percent in the near term but to stabilize around the committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.”

My interpretation of the Fed’s guidance: They presently anticipate both U.S. and global fiscal, monetary, trade and regulatory policy drivers are complimenting each other in a way that will allow for global growth objectives to be met for a period, possibly one to three-plus years. Always remember anomaly events can disrupt expectations.   

Thus, the Fed remains friendly or accommodative. This accommodation should allow them to increase the Fed Fund Rate from the current 1.25 percent to 1.50 percent at their December 12-13 meeting. Also, they remain on target to continue moving their October 2017 balance sheet normalization program forward. Both of the actions are likely required to achieve the desired results of a slow movement in the direction of normalizing the Fed Funds Rate as well as achieving their balance sheet normalization objectives.

As long as global economic, social, political and military stability continues close to today’s level, then the global growth objectives are likely achievable into the future. These objectives are only achievable due to continuous ongoing simulative activities of Global Governments and Central Banks.

The likely outcome for global:

·       Currencies during this period. The United States and Chinese currencies will likely need to have more weakness than strength against other currencies for a period. 

·       Bonds during this period. The United States Treasuries should ever so slowly rise both on the short end and the long end. Globally, painting with a wide brush many major sovereign bonds will have to start moving in a direction of normalcy.

·       Equities both domestically and globally during this period need to maintain a slow and easy sideways to up rhythm. That is not as alien a statement as it may seem, due to both past and present global simulative liquidity flows.  

·       Commodity prices will rise due to building demand and inflationary forces brought on by aggressive global simulative activities.    

The coming months and likely next several years will be an amazing period of very complex economic and market dynamics, which we will discuss as economic, social, political, and military events unfold.

What to expect from the markets this week, November 5, 2017

Market “Near Term” Snap Shot

·       Rice: This week will move us closer to determining if current price action is corrective with likely another leg to the upside or if a near term top is in place (Charts 38 and 39).

·       Cotton: Cotton needs to confirm a bottom is in place (Charts 40 and 42).

·       Soybeans: A complex market that is likely building a base before moving higher, holding $9.70 likely important to near term price strength (Charts 32 and 34).

·       Corn: Searching for a low, so assume bearish until price action becomes more supportive of a bullish case and give consideration to prices possibly moving to their previous 2016 lows of $3.15 or below (Charts 35 and 37).

·       Wheat: Wheat appears to have additional price weakness into the 3.90 area (Charts 43 and 45). 

·       10-year Treasury Yield: Remains in a Sideways-Trading-Range between 2.14 and 2.60 (Charts 1 and 3).

·       U.S. Dollar: Corrective activity continues, but once complete the door is open for a decline to 87 (Charts 4 and 6).

·       Oil $WTIC: Momentum regained and likely sustained this week. The $45 to $50 trading range is now being redefined with the upper limits above $55 (Charts 29 and 31).

·       $CRB Commodity Index: Macro factors and chart structure imply continued cautious optimism. Global Governments and Central Banks actual and anticipated intervention indicate a slow fruit bearing process underway Charts 26 and 28). 

·       S&P 500: Primary trend remains up. Consolidation or correction desirable, not required. Allow price action to provide guidance (Chart 14).

·       Global Equities Excluding U.S. and Canada: Primary trend remains up. A cautionary time period but interestingly trying to regain momentum. Allow price action to provide guidance (Chart 16).

·       Feeder Cattle: In search of a top.   

In addition to the following “Expanded near Term Market Outlook Considerations for Week Beginning November 6, 2017”

·       Download Slide Show for charts and expanded details, Click Download Link

This Week’s Select Summary Considerations:

•        10-Year US Treasury Yield:

•        Remains in a Sideways Trading Range between 2.14 and 2.60.

•        Lower yields are a function of: Demand, Economic Weakness, Event Risk. Concerns, or Other Market Concerns/Factors could take the yield lower.

•        Near term higher yields have been in part a function of U.S. and Global market intervention activities designed to extend domestic and global growth and the business cycle.

•        If the yield moved above 3.00 then consideration would need to be given to a change in trend.

•        Bond yields need to hold at 1.95 or serious consideration would need be given to ominous building economic problems.

•        U.S. Dollar Index:

•        Corrective activity continues, but once complete the door is open for a decline to 87.

•        Given global macro considerations coupled with no significant global anomaly event moving forward this index may have some serious weakness.

•        Unless Middle East, North Korean, European, Venezuelan or other anomaly events start to dominate market participant decisions, then we are still in search of a low for the dollar.

•        CRB Index:

•        Macro factors and chart structure imply continued cautious optimism.

•        Global Government and Central Bank actual and anticipated intervention indicate a slow fruit bearing process underway.

•        Bigger Picture: Though dangerously spastic, global macro and growth forces in general remain supportive of the commodity sector.

•        $WTIC Light Crude Oil:

•        Momentum regained and likely sustained this week.

•        The $45 to $50 trading range is now being redefined with the upper limits above $55.

•        A complex, volatile and an uncertain market that deserves a great deal of respect in a world with building economic, social, political and homeland security uncertainties.

•        North Korea, market structure, geopolitical considerations and building possibilities of a Venezuelan civil war are just some of the supportive factors.

•        Soybeans:

•        A complex market that is likely building a base before moving higher, holding $9.70 likely important to near term price strength.

•        A world awash in liquidity, building economic momentum and many hard assets seemingly overvalued, be careful not to overlook the possible attractiveness of this asset to buyers and investors.

•        Corn:

•        Searching for a low, so assume bearish until price action becomes more supportive of a bullish case and give consideration to prices possibly moving to their previous 2016 lows of $3.15 or below.

•        Long Grain Rice:

•        This week will move us closer to determining if current price action is corrective with likely another leg to the upside or if a near term top is in place.

•        Remain aware of potential near term uncertain global economic crosscurrents related to currencies, bonds, equities and commodities as they go through a rebalancing process.

•        Cotton:

•        Cotton needs to confirm a bottom is in place.

•        Wheat:

•        Wheat appears to have additional price weakness into the 3.90 area.

•        SPY SPDR S&P 500 ETF:

•        Primary trend remains up.

•        Consolidation or correction desirable not required. 

•        Allow price action to provide guidance.

•        $COMPQ Nasdaq Composite:

•        Regaining momentum on the backs of Amazon, Alphabet, Intel, Microsoft, etc.

•        Allow price action to provide guidance.

•        Primary trend remains up.

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

•        Primary trend remains up.

•        A cautionary time period but interestingly trying to regain momentum.

•        Allow price action to provide guidance.

•        EEM iShares ETF, Emerging Market Equities:

•        A cautionary time period, but breaking out.

•        Allow price action to provide guidance.

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

Download Slide Show for charts and expanded details, Click Download Link

DISCLAIMER-FOR-EDUCATIONAL-PURPOSES

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