We all seem to be hoping: First, through fiscal, monetary and trade policy that U.S. and global economic momentum may be maintained (likely achievable); Second, contentious global trade policy disputes will be resolved (likely not achievable); Third, that global rice, grain and cotton supply and demand fundamentals will become more favorable for stronger prices (U.S. continuous planting season rainfall has all considering adjustments to their rice and grain balance sheets), but still to be seen if technology and efficiency can override Mother Nature’s planting season weather obstacles.
Global Market Rebalancing. This is a year of global market rebalancing. Why? So global economic momentum may be extended for several more years into the future and avoid a dangerously crippling global economic downturn. Global equity markets in general have had a huge surge since their December 2018 low, so what should one expect now from the global equity markets? Probably a similar period of consolidation or correction. Granted, U.S. equities possibly could benefit from overall potential global weakness, since global investment alternatives are lacking.
U.S. Global Policy Disputes. I hate to be the bearer of bad news, but the U.S. cannot carry the world’s inefficient and debt burdened economies into the future. Realize Chinese policy actions that led to the current disparities between U.S. and China have significantly weakened the U.S. economic foundation, while significantly strengthening China’s economic foundation, so China is testing U.S. resolve to force them to deviate from their decades old objectives. Russia has territorial ambitions, not to mention other countries like Iran, Turkey, etc. while the European Union is highly problematic economically, socially and politically. Mexico and Canada seem to be bright spots, where reasonably amenable economic relationship seems possible.
Weather Market. This is certainly a weather market, probably enough said. Now we watch planting progress unfold with the next 3 weeks being extremely critical.
Market dynamics and outlook for the week beginning May 20, 2019
Interest Rates. 10-Year U.S. Treasury Yield: The trend remains sideways to down, Charts A1 to A4.
The 10-Year U.S. Treasury Yield or interest rate May 17, 2019 was 2.39 and my contention is, given time, it has potential to revisit the July 2016 low of 1.43. The November 2018 high was 3.24. That said, we need to take this market a week at a time.
U.S. Dollar Index. The U.S. Dollar Index remains in a slowly rising sideways to up trading pattern, which will likely be sustained for a period, Charts A5 to A8. The dollar is currently at 97.82 on May 17, 2019. Consider the following about the U.S. dollar:
- First, A rising dollar will place a drag on U.S. domestic and global growth, given today’s global economic dynamics;
- Second, a neutral to lower dollar would be supportive of current U.S. economic activity and global economies in general; and
- Third, currency imbalances remain one of global leadership’s biggest challenges.
Soybeans. Near term soybeans prices remain sideways to down. The potential trading range remains $7.77 to $9.30 per bushel, May 17, 2019 close $8.22 per bushel. If support at $7.77 is lost, I will consider a trading range of $7.60 to $8.62 per bushel, Charts B10 to B13.
Corn. Near term corn prices remain in a current volatile sideways trading range. The potential near term trading range is $3.28 to $4.01 per bushel, and weather, swine flu, policy disputes and other geopolitical events will define future potential price considerations. May 17, 2019 close $3.83 per bushel, Charts B14 to B17.
Long Grain Rice. Near term rice remains in a sideways trading range. The primary trading range presently is July $10.17 to $11.30 per cwt. or $4.58 to $5.09 per bushel, May 17, 2019 July close $11.07 per cwt. or $4.98 per bushel, Bearish domestic and global fundamentals remain problematic for this market, but hope remains March 29, 2019 planting intentions will fall significantly short. Charts B18 to B20.
Cotton. Price weakness remains problematic. Cotton prices need to hold above 64 cents the week of May 20, 2019 or serious price weakness could emerge. May 17, 2019 close 66 cents per pound, Charts B21 to B24.
Wheat. Price weakness remains. Wheat prices remain in a downside trading range of $4.08 to $4.73 per bushel with a May 17, 2019 close $4.65 per bushel. We will adjust our estimates as market dynamics unfold, Charts B25 to B28.
Global Equity ETF-ACWI. If support at $71.00 does not hold, a further correction is likely; a slowly rising dollar will likely put additional downside pressure on price strength.
Global equity market performance as measured by the All Country World Index ETF-ACWI, a broad range of international developed equity and emerging market companies, Chart A19B, on May 17, 2019 had a value of $71.99. Its previous all-time high was $75.94 in January 2018 and its near-term low was in December 2018 at $60.92.
Emerging Markets. Global emerging market performance is becoming dangerously weak, which is a near term function of U.S. dollar strength and rising uncertainties about global economic momentum.
Emerging Markets ETF-EEM, Chart A20, made a high in January 2018 of $50.98, a low in October 2018 of $37.02, May 17, 2019 price was $40.29. The dollars near term slowly unfolding strength. China’s aggressive policy actions negative impact on geopolitical relations and global economic activity, coupled with European Union economic uncertainties are three key factors, which could limit near term potential upside to this ETF.
S&P 500. Interesting weakness moving from all-time highs the week before.
May 17, 2019 the S&P 500 is at 2860, up from the December 2018 low of 2347. The previous all-time high was in this month at 2954. The S&P 500 still has potential to make new all-time highs from current levels, but if global economic momentum starts decelerating for a period, this index likely starts the process of defining a trading range in coming months.
$CRB Index. This index likely moves sideway the week of May 20, 2019, as market participants digest global economic and geopolitical uncertainties, May 17, 2019 close 177, Range expectations (177 to 189).
With global deflationary forces remaining problematic; with many of the world’s commodities still surplus burdened; with the ongoing global realignment of the world’s currency, bond, equity, and commodity markets; and with several key global policy disputes, limitations remain to this index’s near-term upside, unless oil prices regain their upward advance, due to a Middle East conflict. Charts B1 to B5.
$WTIC Light Crude Oil. Light crude oil is in a sideways trading range of $60.49 to $66.96, May 17, 2019 close $62.92 per barrel, Charts B6 to B9.
Closing the week of May 20, 2019 above $63.55 per barrel, then I will rethink my upside trading range price target. Geopolitical dynamics coupled with supply uncertainties make this market challenging for analysts, so be respectful of price action
No Crystal Ball
Since no one has a crystal ball or knows the future always consult an investment professional or professionals before making investment decisions. The world’s most talented speculators, investors and money managers are challenged by today’s global business environment.
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