Will there be a U.S. and Chinese trade deal? Yes, but it will not be The Deal, which is to say there will not be a near term comprehensive multiyear agreement between the U.S. and China. This will be bearish for the commodity sector in general, but especially problematic for the U.S. grain markets.
Resolving U.S. and Chinese trade disputes will be a multiyear process, or, said differently, an ongoing fiscal, monetary, and trade negotiation policy process. Why? China has defined objectives and sees no reason to deviate from those objectives, which are global economic, technological, financial, and military supremacy. China sees no reason why they should not replace the United States as the world’s super power economically, technologically, financially, and militarily.
Market Dynamics and Outlook for the Week Beginning May 13, 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 10, 2019 was 2.47 and presently my contention, is, given time, it has the potential to revisit the July 2016 low of 1.43. The November 2018 high was 3.24. That said, we need to take these markets a week at a time.
My expectation: this is a year for global governments and central banks to realign global currency, bond, equity and commodity markets, which would have the potential to extend global economic momentum for possibly a few years. Thus, global economic momentum going forward will likely have a slight downside bias at least into the fall of 2019.
That said, global economic stability will be maintained, even as global governmental actions address global economic challenges across the globe with a couple of examples being the European Union and Chinese uncertainties.
This will produce periods of strength and weakness in global economic activity. More importantly, this will lay the foundation for stronger domestic and global growth in 2020; therefore, 10-Year Treasury Yields should remain sideways with a downside bias, which is critically important for the U.S. economy and the collective global economies.
U.S. Dollar Index. The U.S. Dollar Index simply 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 97.12 on May 10, 2019. Consider the following about the U.S. dollar:
First, President Trump finds no humor in a rising U.S. Dollar. Why? 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 $7.95 to $9.39 per bushel, May 10, 2019 close $8.09 per bushel. If support at $7.95 is lost then I will consider a trading range of $7.64 to $8.67 per bushel, Charts B10 to B13.
Corn. Near term, corn prices remain in a sideways trading range. The potential near-term trading range is $3.44 to $3.78 per bushel and additional downside to $3.04 per bushel remains a consideration. May 10, 2019 close $3.52 per bushel, Charts B14 to B17.
Long Grain Rice. Near term rice remains in a sideways trading range with a downside bias. The primary trading range presently is July $10.13 to $11.02 per cwt. or $4.56 to $4.96 per bushel, May 10, 2019 July close $10.99 per cwt. or $4.95 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 highly problematic. Cotton prices need to hold above 64 cents the week of May 13, 2019 or serious price weakness could emerge. May 10, 2019 close 68 cents per pound, Charts B21 to B24.
Wheat. Price weakness remains. Wheat is displaying a downside trading range of $4.02 to $4.58 per bushel with a May 10, 2019 close $4.25 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 10, 2019 had a value of $72.88. 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 near term will in part be a function of dollar strength and potential waning global economic momentum, so be vigilant of weak price action. Emerging Markets ETF-EEM, Chart A20, made a high in January 2018 of $50.98, a low in October 2018 of $37.02, May 10, 2019 price was $41.98. The dollars near-term slowly unfolding strength, China’s aggressive policy actions’ negative impact on geopolitical relations and global economic activity, with European Union economic uncertainties are key factors, which could limit near term potential upside to this ETF.
S&P 500. Remains at All-Time Highs. May 10, 2019 the S&P 500 is at 2881, up from the December 2018 low of 2347. The previous all-time high was in September 2018 at 2941. The S&P 500 could make new all-time highs from current levels, but if global economic momentum starts decelerating for a period, this index likely starts defining a trading range in coming months.
$CRB Index. Further weakness likely the week of May 13, 2019, due to global economic and geopolitical uncertainties, May 10, 2019 close 179, range expectations (173 to 190). With global deflationary forces, a key function of global debt, remaining problematic; with many of the world’s commodities 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. Charts B1 to B5.
$WTIC Light Crude Oil. Light crude oil continues sideways with price momentum slowly waning, May 10, 2019 close $61.66 per barrel. Geopolitical dynamics coupled with supply uncertainties make this market challenging for analysts, so be respectful of price action, Charts B6 to B9.
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.
Download Slide Show for charts and expanded details, Click Download Link