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January 23, 2018
The expectation for 2018 is a year of sustained domestic and global growth through 2018 and into 2019 as governments and central banks globally throttle-up measured amounts of stimulus into their respective economies in the much talked about orchestrated manner to achieve desired levels of growth in country after country around the world.
The achievement of the desired stimulus level, given assumed global stability, will allow:
Both short and longer term Treasury bond rates to rise in a slow controlled manner
The dollar to have more weakness than strength and a similar dynamics for the Chinese currency
Most U.S. and global equity markets sideways to up with corrections along the way allowing for the avoidance of a bubble
The achievement of desired levels of global growth will elevate the demand for commodities
This basic domestic and global growth stimulus driven strategy paid huge dividends over the past six-plus months with investors increasingly bullish on domestic and global growth. All-important “CONFIDENCE” in the U.S. and Global economic future has reemerged. U.S and global equity markets have been and are expected to move sideways to up this year with corrections along the way. In the commodity space global demand is reemerging. Note the following Six Month Percent Change in select commodities.
Symbol Name % Chg
BNO Oil Brent Fund 41.7
JJN Nickel Bloomberg SubIndex ETN 35.3
USO Oil Fund 03 Month Fund 31.3
LIT Lithium 29.0
USL Oil Fund 12 Month Fund 29.0
UGA Gasoline Fund 28.5
PALL Physical Palladium Shares 28.4
DBE Energy Fund 27.0
LD Lead Bloomberg SubIndex ETN 26.1
BAL Cotton Bloomberg Subindex ETN 24.4
GSP Commodity Total Return ETN 21.2
DBB Base Metals Fund 18.1
JJC Copper Bloomberg SubIndex ETN 17.9
JJU Aluminum Bloomberg SubIndex ETN 15.9
DBC Commodity Tracking Fund 15.1
PPLT Physical Platinum Shares 9.6
DJP Bloomberg Commodity Index ETN 7.1
GLD Gold Trust 7.1
DBP Precious Metals Fund 6.6
SLV Silver Trust 4.2
NIB Cocoa Bloomberg Subindex ETN 0.0
SOYB Soybeans Fund -4.9
COW Livestock Bloomberg Subindex ETN -5.4
DBA AG Agriculture Fund -8.1
UNG 105011_EN Natural Gas Fund (USCF) -9.5
CORN 105051_GR Corn Fund (TC) -12.9
SGG Sugar Bloomberg Subindex ETN -13.5
JJG Grains Bloomberg Subindex ETN -16.1
JO Coffee Bloomberg Subindex ETN -17.5
WEAT Wheat Fund -21.8
To date not all commodities have participated in the building global bull market for equities and commodities.
For instance, oil, the lead commodity, has been performing well over the last six months for a number of reasons. Up until recently oil’s bullish performance has been due less to fundamentals and more to intervention and uncertainties surrounding this market. Fundamentals and uncertainty will be supportive of the global oil market in 2018 and well into 2019.
Base metals are performing well in anticipation of major amounts of global stimulative monies being invested into infrastructure and businesses.
For field crops, cotton is bullish, but rice and grains are struggling due to global overproduction and other issues. Rice and wheat are so important to feeding the world’s expanding population that protectionism, currency differentials, and regional and global trade barriers are key factors that are problematic for U.S. exports. As one studies the global economic activity, it becomes increasingly clear that the “Orchestrated Stimulative U.S. and Global Effort” was highly successful in 2017, expectations are the effort will meet with like, if not greater, success in 2018 with potential well into 2019 and longer.
Rice: For the 2018/19 marketing period, the price of U.S. long grain rice in large part will be dependent on planted acreage without a new demand source. We are in a cycle of under planting and then overplanting. Weather, currency, protectionism, etc., are factors influencing price, but overplanting in 2018 without a new demand source will have a depressive effect on rice prices, so plan accordingly.
Grains: For this discussion corn, soybeans and wheat are in a price bottoming process and the length of the process in no small part is dependent on 2018 global production expectations as well as global reflationary growth expectations.
What could derail global growth and weaken equity and commodity prices?
Presently, there is, for lack of a better way to state the issue, reasonable global social and political stability, which is absolutely required to achieve multiple years of global growth and demand for many global equities and commodities.
What to expect from the markets this week, January 22, 2018
Market “Near Term” Snap Shot
Rice: This market likely has more weakness than strength as market participants digest potential of significant expansion of 2018 U.S. long grain rice planted acres (Charts 38 and 39).
Cotton: Cotton prices remain in a determined grind to the upside. Closing and holding above 88.50 cents implies possible significantly higher prices (Chart 40 to 42)
Soybeans: It is still not obvious that this market has either fully corrected or found a bottom. That may change with this week’s price action, but presently still give consideration to prices revisiting the 2017 low of $9.00 (Charts 32 to 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 to 37).
Wheat: Wheat appears to have additional price weakness into the 3.90 area (Charts 43 to 45.)
10-year Treasury Yield: Consolidating with new highs possible to 2.75 (Charts 1 to 3)
U.S. Dollar: A significant decline is now underway, so first give consideration to 87 before correcting and moving lower (Charts 4 to 6).
Oil $WTIC: Fundamentals and global uncertainties increasingly supportive of this market. Price action to $73-plus a consideration (Charts 29 to 31).
$CRB Commodity Index: Macro factors and chart structure imply continued cautious optimism, though some back filling may be in order (Charts 26 and 28).
S&P 500: Trend remains up, but a cautionary time period (Chart 14).
Global Equities Excluding U.S. and Canada: Trend remains up, momentum regained (Chart 16)
Feeder Cattle: Bullish.
In addition to the following “Expanded near Term Market Outlook Considerations for Week Beginning January15, 2018”
This Week’s Select Summary Considerations:
10-Year US Treasury Yield: A strong week with new highs possible to 2.75 or even 3.00. 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 cycles. Lower yields are a function of: Demand, Economic Weakness, Event Risk Concerns, or Other Market Concerns/Factors could take the yield lower.
U.S. Dollar Index: A significant decline is now underway, so first give consideration to 87 before correcting and moving lower. 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, we are still in search of a major low for the dollar.
CRB Index: Macro factors and chart structure imply continued cautious optimism, though some back filling may be in order. Global Government and Central Bank actual and anticipated intervention indicate a building 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: Fundamentals and global uncertainties increasingly supportive of this market. Price action to $73-plus a consideration. A complex and volatile market focused on global uncertainties like Saudi Arabian and Iranian building friction, other Middle East challenges, North Korea, market structure, geopolitical considerations and building possibilities of a Venezuelan civil war are just some additional considerations; all deserve heightened respect in a world with building economic, social, political and homeland security uncertainties.
Soybeans:It is still not obvious that this market has either fully corrected or found a bottom. That may change with this week’s price action, but presently still give consideration to prices revisiting the 2017 low of $9.00.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 speculators, investors and end-users.
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 market likely has more weakness than strength as market participants digest potential of significant expansion of 2018 U.S. long grain rice planted acres.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 prices are in a slow grind to the upside. Closing and holding above 88.50 cents implies possible significantly higher prices.
Wheat: Wheat appears to have additional price weakness into the 3.90 area.
SPY SPDR S&P 500 ETF: Trend remains up, but a cautionary time period.Consolidation or correction desirable not required. Allow price action to provide guidance.
$COMPQ Nasdaq Composite:Passive investors have lifted this market to a level that one must now focus on the risk vs reward of holding the index near term. Allow price action to provide guidance.
EFA iShares ETF - Global Equities Excluding U.S. and Canada:Trend remains up. Momentum regained .Allow price action to provide guidance.
EEM iShares ETF, Emerging Market Equities:A cautionary time, but momentum regained.Allow price action to provide guidance.
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
Professor, Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service
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].
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