Orchestrated global growth likely will be maintained through global stimulus-driven fiscal, monetary, trade and regulatory policies allowing the avoidance of a recession for two to three-plus years.
Why stimulus driven global growth? Presently, global economies do not have the economic strength or stability to weather a global economic downturn (recession), especially true of the world’s largest economies like the European Union and China.
Heavy European socialism and the ongoing Chinese credit crisis are enormous headwinds to economic activity for the European region and the Chinese economy. That said, all countries have debt burdens that are chronic and unsustainable, even the United States, but the reset period is likely one to two decades away.
Market turbulence. Market turbulence, misdirection, and uncertainty will be the norm for market participants until a significant recessionary period emerges.
Mini-Recessions: If U.S. and global growth are going to be stimulus driven for potentially as long as five more years, the avoidance of any dangerous economic downturn that would lead to serious social and political instability will require stimulative activities that go through throttle-up stimulative growth periods and throttle-down cooling periods to avoid major asset bubbles.
Protectionism: Global protectionism is insanely out of control, which means the president, Congress, and the U.S. Central Bank have drawn a line in the sand related to what most think of as trade disputes or trade fairness but constitutes an array of policy issues that must be resolved.
Market outlook into November 2018
Many of the world’s global equity and commodity markets should be nearing a period of price firmness to price strength over the next two to four months as a new round of global stimulative- driven growth, or what some refer to as orchestrated global growth, pumps up global economic activity and the demand for equities and commodities.
Globally, hard asset markets like equities and commodities must rebalance periodically, either to avoid an asset bubble or to avoid an accelerated downside move. Price response by global equity or commodity markets will vary over the next two to four months, due to stimulus-driven global growth, but the following are some expectations to consider heading into November 2018:
- U.S. equities sideways to up.
- Global equity index, emerging markets, and frontier economies mostly sideways to up.
- The U.S. Dollar mostly sideways to down and most other currencies sideways to up.
- U.S. 10-Year Treasury trades mostly sideways with a slight upside bias, but probably not through an interest rate of 3 percent.
- $WTIC oil likely shows some price strength into early September followed by price weakness into November. Stimulus-driven global growth could be throttled back soon after November 2018 to a point that oil demand does not meet expectations and prices soften for a period.
- The $CRB Index will likely be reasonably correlated to the price of oil since most other commodities will be facing varying headwinds going into November, limiting growth potential.
- The price dynamics will vary, but soft commodities or coffee, cocoa, sugar, cotton, orange juice, and lumber are likely beneficiaries of near-term price firmness, but many of these commodities likely need to finish a bottoming process.
- The grains are interesting. I am talking about rice, soybeans, corn, and wheat. Chinese policy issues and/or fundamentals are weighing heavily on these markets going into November 2018, so we will let price action define our outlook. (See comments below)
- Gold and the metals in general may have some near term price support if the dollar continues to weaken, but this sector still appears to be in search of a bottom.
- Lean hogs, feeder cattle, and live cattle all appear to have potential price weakness into November.
Weekly Market Outlook - Beginning August 27, 2018
Commodity Index, $CRB: Commodity bulls need to see the $CRB Index close the week of August 27, 2018 above 192 (August 24, 2018 – 192). Charts (B1-B5). Commodity bears need to see this index lose support at 185. This would likely imply major across the board commodity weakness, due to commodity fundamentals and global economic uncertainties with the index falling to at least 179. Near term, the commodity bears have the upper hand.
Oil, $WTIC – This market continues sideways to down, a very cautious period. Consideration now must be given to this market continuing to make lower lows and lower highs for a period. The bulls need to see this market end the month of August 2018 above $70 per barrel. (August 24, 2018 - $68.72). Charts (B6-B9) Big Picture: An interesting array of factors from fundamentals, to global policy drivers, to social, economic, political, and military uncertainties keep this market at elevated levels and does not appear to be losing its influence anytime soon, which limits the downside.
Soybeans: Soybeans (August 24, 2018 - $8.55 per bushel) now appear to have price weakness into the $8.00 per bushel area. Fundamentals and global political and economic uncertainties are major headwinds, but tightening aggregate global grain stocks are raising global food security concerns and possibly price supportive. Charts (B10-B13)
Corn: This market likely needs to retest its previous low at $3.39 per bushel with further potential downside to $3.23 per bushel (August 24, 2018 - $3.62 per bushel). Charts (B14-B17)
Wheat: Wheat ended the week of August 20, 2018 with price weakness to $5.36 per bushel, indicating additional price weakness to $4.86 per bushel. (B14-B17)
Long Grain Rice: Fundamentals are weighing heavily on this market. Near term, rice needs to end the week of August 27, 2018 above $10.72 per cwt. to show potential to regain price momentum. Closing the week of August 27, 2018 below $10.13 per cwt. implies additional price weakness ahead. (Chart B18-B20)
Cotton: Key consideration: If cotton can remain above December 77.9 cents per pound, this market has the potential to regain a bullish posture, given today’s global economic setting. Finishing the week of August 27, 2018 below 77.9 cents per pound would likely indicate some serious price weakness lies ahead (August 24, 2018 – 81.63-cents per pound). Charts (B21-B24)
U.S. Dollar: The U.S. Dollar mostly sideways to down and other currencies sideways to up the week of August 27, 2018.
10-Year U.S. Treasury: The U.S. 10-Year Treasury trades mostly sideways with a slight downside bias the week of August 27, 2018.
Rice Outlook Webinar: August 30 at 3 PM CST USDA’s Economic Research Service’s Dr. Nathan Childs will discuss Rice Situation and Outlook & NASS August 1 Rice Stocks Report Analyzed . Following Nathan’s presentation, USDA NASS Regional Director Eugene Young will discuss their latest Rice Stocks Report and address any attendee questions related to rice stocks.Young has 28 years of experience working at USDA-NASS and has worked in offices in Arkansas, North Carolina, and Washington, D.C. He is a graduate of the University of Arkansas with a Bachelor of Science in Agricultural Business and a Master’s in Agricultural Economics.
Link to register: http://bit.ly/UAEX-Rice-Situation-Outlook-Child-Young
Brazil, NAFTA, China Video: Agricultural Trade: China, NAFTA and Brazilian Agriculture in Focus with Dr. Luis A. Ribera, Professor and Extension Economist, Texas A&M, aired August 23, 2018
This video focuses on how important trade is for the well-being of U.S. farmers and how trade agreements impact trade flows. Then NAFTA was analyzed and current renegotiation issues were discussed. Trade issues with China and the growth of Brazilian agricultural production were examined.
Viewing Links: YouTube https://youtu.be/8PGVY0ffgT8 Website http://www.uaex.edu/ag-webinars
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@example.com.
Download Slide Show for charts and expanded details, Click Download Link