Market Outlook Considerations for the Week Beginning October 23, 2017Market Outlook Considerations for the Week Beginning October 23, 2017

What to expect from the markets this week, October 23, 2017

Rice, cotton, soybeans, corn and wheat lag in market complex, but considering the fundamentals, price weakness would have been significantly worse without the massive simulative Global Government and Central Bank intervention actions in 2017.

Here’s a look at that to expect this week.

Market “Near Term” Snap Shot

·       Rice: Price action appears to be corrective with likely another leg to the upside (Charts 38 and 39)

·       Cotton: After not holding support, cotton appears to have some additional downside price weakness in search of a bottom (Charts 40 and 42)

·       Soybeans: A complex market being impacted by global macro forces that is likely building a base before moving higher (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, much like cotton, could not hold key support and is in search of a bottom(Charts 43 and 45)  

·       10-year Treasury Yield: Remains in a Sideways-Trading-Range with a near term slightly bearish bias or higher yield (Charts 1 and 3)

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

·       Oil $WTIC: Ongoing sideways choppy price action likely continues this week with the $45 to $50 trading range likely broadening to $45 to $55-plus (Charts 29 and 31)

·       $CRB Commodity Index: Macro factors and chart structure imply cautious optimism (Charts 26 and 28) 

·       S&P 500: Primary trend remains up, but a cautionary time period with consolidation needed but not required as the retail investor keeps entering the market (Chart 14)

·       Global Equities, Excluding U.S. and Canada: Primary trend remains up, but a cautionary time period, but interestingly trying to regain momentum (Chart 16)

·       Feeder Cattle: Correcting upside price move before moving higher   

Sustainable Global Growth Emerging 

Many Equities and Commodities Beneficiaries

The U.S. and world’s economies are showing signs of sustainable growth possibly through 2018 in large part due to:

·        Government and Central Bank ongoing intervention through major simulative activities, and

·       Attention to economic, social and political detail.

Rice, cotton, soybeans, corn and wheat in the commodity complex have been participatory price laggers, but one could certainly point out, given their fundamentals, price weakness would have been significantly worse without the massive simulative Global Government and Central Bank intervention actions in 2017.

The intervention activities are an amazing accomplishment. This allows the avoidance of a near term domestic and global recession and possibly far worse.

The POSITIVE: Avoiding a U.S. and global recession through Global Government and Central Bank intervention activities allows:

o   Deflation’s global dominance to be replaced by a higher level of growth and building inflationary forces.

o   Low to negative interest rates in many countries are likely to be replaced by slowly rising interest rates. Japan may be one of the exceptions.

o   A larger number of pension funds to have some glimmer of hope of achieving and meeting their future obligations.

o   At least near term most global equity markets to expand.

o   The U.S. Dollar and the Chinese Renminbi Yuan have been given a reprieve period, allowing more balanced global growth.

o   Expectations for commodity markets across the board to have potentially more strength than weakness over the next 1 to 2-plus years assuming a commodity sector is not totally suicidal with overproduction.

o   Businesses and financial institutions to further repair their balance sheets.

o   Minimizing the downside in “LAND” and Real Estate Markets in general.

o   Small business the opportunity to invest in the future.

The NEGATIVE: The future costs of avoiding a U.S. and global near term recession are likely high as we keep pushing economic, social, political, etc. problems down the road.

The IMF in their October Economic Outlook report is forecasting an improving global economy for the remainder of 2017 and 2018, while acknowledging dangerous underlying crosscurrents. IMF real gross domestic product outlook follows: Click on link for more detail.

·       Global growth is projected at 3.6-percent in 2017 and 3.7-percent in 2018 (real gross domestic product growth)

o   Advanced economies 2.2

o   Emerging and Developing Asia 6.5

o   Emerging and Developing Europe 4.5

o   Emerging market and developing economies 4.6

o   Euro area 2.1

o   European Union 2.3

o   Latin America and the Caribbean 1.2

o   Major advanced economies (G7) 2

o   Middle East and North Africa 2.2

o   Middle East, North Africa, Afghanistan, and Pakistan 2.6

o   Other advanced economies 2.6

o   Sub-Saharan Africa 2.6

o   World 3.6

U.S. and Global Equity ETFs

The following shows the 6-month percentage change in select U.S. and global equity ETFs, which does a reasonable job of demonstrating global growth and economic momentum. Realize that this growth and momentum is only sustainable through ongoing continuous fiscal, monetary, trade and regulatory policy growth activities.

Accompanying Slide Show: See Slides 12-17 for International ETFs sorted from largest to smallest percent change by 1-Week, 1-Month, 3-Months, 6-Month, & 1-Year    

Select U.S. and global equity ETFs 6 month percent change                  

ETF                 Commodity                                         Six Month % Change

Symbol                                                                                       

EWO               Austria iShares ETF (EWO)                          32.7

EWI                 Italy iShares ETF (EWI)                                25.0

FXI                  China iShares ETF (FXI)                               21.7

EWY               South Korea iShares ETF (EWY)                  20.0

EWQ               France iShares ETF (EWQ)                          19.5

EWD               Sweden iShares ETF (EWD)                         18.6

EEM                Emerging Markets ETF (EEM)                      18.3

EWN               Netherlands iShares ETF (EWN)                  18.1

EWK               Belgium iShares ETF (EWK)                         17.4

EWG               Germany iShares ETF (EWG)                      17.4

EWZ               Brazil iShares ETF (EWZ)                             17.3

EWT               Taiwan iShares ETF (EWT)                           15.4

DIA                 DJIA Dow Jones Ind Av ETF (DIA)               14.7

EWH               Hong Kong iShares ETF (EWH                    13.9

EFA                 EAFE Index ETF (EFA)                                13.8

EWS                Singapore iShares ETF (EWS)                    13.0

EWJ                Japan iShares ETF (EWJ)                            12.9

QQQ                Nasdaq Power Shares ETF (QQQ)             12.7

INP                  India iShares ETF (INP)                               11.0

EWL               Switzerland iShares ETF (EWL)                   10.7

EWU               United Kingdom iShares ETF (EWU)           10.3

SPY                 S&P 500 SPDR ETF (SPY)                         10.3

RSX                Russian ETF (RSX)                                     10.1

EWC               Canada iShares ETF (EWC)                       10.1

EWP                Spain iShares ETF (EWP)                          10.1

EWA               Australia iShares ETF (EWA)                       6.0

EWM              Malaysia iShares ETF (EWM)                      5.2

EWW              Mexico iShares ETF (EWW)                        2.1

 Select Commodity ETFs

The following shows the 6-month percentage change in select commodity ETFs. Note cotton and the grains have not benefited proportionally compared to most of the hard assets. But be aware global economic momentum is building.  

Accompanying Slide Show: See Slides 6-11 for International ETFs sorted from largest to smallest percent change by 1-Week, 1-Month, 3-Months, 6-Month, & 1-Year  

 Select commodity ETFs 6 month percent change

 ETF                 Commodity                             Six Month % Change

Symbol                      

LIT                  Lithium                                               38.92

JJN                  Nickel Bloomberg SubIndex              25.22

JJC                  Copper Bloomberg SubIndex            24.68

PALL              Physical Palladium Shares                 21.07

NIB                 Cocoa Bloomberg SubIndex              19.56

DBB                Base Metals Fund                              16.40

UGA                Gasoline Fund                                   11.42

LD                   Lead Bloomberg SubIndex                 9.45

JJU                  Aluminum Bloomberg SubIndex        9.34

BNO                Oil Brent Fund                                    8.31

COW               Livestock Bloomberg SubIndex          6.29

DBE                Energy Fund                                       4.35

DBC                Commodity Tracking Fund                 3.11

GSP                 GSCI Commodity Total Return         3.01

SOYB              Soybeans Fund                                 2.27

DJP                 Commodity Bloomberg Index           1.34

GLD                Gold Trust                                         -0.29

USL                 Oil Fund 12 Month Fund                  -0.49

USO                Oil Fund 3 Month Fund                    -1.04

DBA                Agriculture Fund                              -1.15

DBP                Precious Metals Fund                      -1.75

WEAT             Wheat Fund                                      -5.69

PPLT               Physical Platinum Shares                -5.72

SLV                 Silver Trust                                       -5.74

JJG                  Grains Bloomberg SubIndex           -6.73

CORN             Corn Fund                                        -7.53

JO                    Coffee Bloomberg SubIndex         -12.18

BAL                Cotton Bloomberg SubIndex           -12.46

UNG                Natural Gas Fund                           -15.29

SGG                Sugar Bloomberg SubIndex           -20.85

GAZ                Natural Gas                                     -33.95

 In addition to the following “Expanded near Term Market Outlook Considerations for Week Beginning October 23, 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 with a near term slight bearish bias or higher yield.

•        Near term higher yields have been in part a function of U.S. and Global market intervention activities designed to extend 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 action continues, but once complete the door is open for a decline to 87 or 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, then we are still in search of a low for the dollar.

•        CRB Index:

•        Macro factors and chart structure imply 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.

•        For the CRB Commodity Index to breakout will likely be a function of oil price leadership and/or broad commodity support, a reasonably stable to weaker dollar and belief and confidence in global fiscal, monetary, trade and regulatory policy leadership.

•        $WTIC Light Crude Oil:

•        Ongoing sideways choppy price action likely continues this week.

•        The $45 to $50 trading range likely has broadened to $45 to $55-plus.

•        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.

•        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

•        With Chinese economy reasonably stable then a “Cautionary Consideration.” Do not rule out a retest of the $9.00 area or potentially lower.

•        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:

•        Price action appears to be corrective with likely another leg to the upside.

•        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 appears to have some additional downside price weakness.

•        Wheat:

•        Wheat much, like cotton, could not hold key support and is in search of a bottom at lower levels.

•        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:

•        Near term remain cautious of this index with momentum uncertain. 

•        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