Global markets are going through a major multi-month realignment period, so an extended period of elevated domestic and global growth, movement toward normalized interest rates, higher inflation levels, etc., can be achieved in the second half of the year and beyond.
For many market participants, this realignment period is much like being an airline pilot facing “hours of boredom punctuated by moments of sheer terror,” or, in this case, elevated levels of market anxiety. These periods of enhanced market anxiety tend to emerge when market fundamentals are overridden by fiscal, monetary, trade and regulatory policy actions that shock or surprise the marketplace with Middle East, North Korean, and ongoing verbal trade dialog exchanges as well as potential anomaly events coming to mind.
Achievement of these near term economic realignment objectives allows potential to achieve the longer term objectives of extending the growth phase of the business cycle through 2019 into 2020 and likely beyond.
Prolonging the U.S. business cycle through fiscal, monetary, trade and regulatory policy intervention is a heavy lifting process, not only for the U.S. Government and Central Bank leadership but for global government and Central Bank policymakers, and requires a very high level of diplomacy. This ongoing realignment process, at least to date, allows avoidance of a near term U.S. and global recession, or a major economic downturn.
Looking at the week ahead
These markets are likely in a multi-month period of realigning, with periods of risk-on and risk-off and choppy sideways chart activity.
U.S. Dollar Index: Consider the possibility that the dollar may be entering a multi-month period of more strength than weakness. Since February 1, 2018, the dollar has been correcting sideways mostly in time, but now one should anticipate the potential of a stronger upside multi-month move in the dollar before the index moves significantly lower. The primary trend of the U.S. Dollar is down, but the final low may take a year or multiple years to unfold.
10-Year US Treasury Yield: Near term, the upside in this market is likely limited to 3.3 and the downside to 2.7. The ongoing current realignment of global markets, in general, will set the stage for the next hard asset advance in equities and commodities, one to two-plus months out, but currently this market is in favor with many investors.
S&P 500: The trend in this market remains up, but one should anticipate an additional one to two-plus months of potentially stronger corrective activity, so exercise caution and at least consider the potential of a 20 percent correction from the high. Just let price action provide guidance.
NASDAQ Composite Index: This market remains in a corrective period with energy and leadership from the likes of Facebook, Apple, Google, Amazon, etc., and these high-tech giants are experiencing some building headwinds on several different fronts extending beyond consumer privacy rights. Just let price action provide guidance.
CRB Index: With ongoing global equities realigning with global currency, bond and commodity markets, the CRB Index needs to hold support at 185, otherwise, major across the board commodity weakness could emerge.
$WTIC Light Crude Oil: This market appears to be in Breakout Mode. Interestingly, a strong breakout will be more positive than negative for the commodity sector. 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 do not appear to be losing their influence any time soon.
Tariffs: Potential trade tariffs, coupled with fundamental and 2018 positive production expectations, appear to be weighing heavily on grain prices, including rice, soybeans, corn and wheat.
- Soybeans: An optimist would say current price action appears to remain corrective, with little reason not to revisit the $10.80 area. After watching last week’s price action, a realist would be increasingly concerned about near term price strength. If prices cannot hold current levels in the $10.40 area, the rice and the grain sector could be in for some additional price weakness.
- Corn: Corn appears to be building a base to move higher. Near term corn needs to hold $3.64 per bushel or some serious downside price risk could emerge.
- Wheat: Wheat appears to be in a corrective period before moving to new highs.
- Long Grain Rice: If U.S. long grain rice producers can limit production to the March 29, 2018, USDA Planting Intentions Report, this should be a reasonably good year for our long grain rice producers. Planting for the present global long grain rice market demand is very important to the economic health of the U.S. long grain rice sector.
- Cotton: Cotton prices remain strong with the objective of moving to, and possibly through, the 89-cent area.
Video and reads worth a look
Video: Rep. French Hill Says Targeted Tariffs Are The Way to Go, Bloomberg Surveillance, April 20th, 2018, Rep. French Hill, a Republican from Arkansas, discusses President Trump's tariffs, the U.S./China trade relationship and farming in his home state. He speaks with Bloomberg's Tom Keene and Francine Lacqua on "Bloomberg Surveillance." https://bit.ly/2qU5qjy (Source: Bloomberg)
Good read: Soybean tariff would re-arrange trade and hurt farmers by Pat Westhoff. Pat Westhoff is director of the Food and Agricultural Policy Research Institute at the University of Missouri and a professor of agricultural and applied economics.
“Even as Congress begins consideration of farm legislation, it is easy to argue that current trade disputes could have a bigger impact on the agricultural sector than a new farm bill. While there have been some reports of progress in the NAFTA negotiations, trade disputes with China have intensified. In response to U.S. trade actions on steel and other goods, China has imposed tariffs on imports of U.S. pork and other products.” Continue reading click on this link: https://bit.ly/2HloQEX
Video: Citigroup's Mann Sees No Recession, Says Fed Path `Appropriate', Bloomberg Surveillance, April 20th, 2018, Catherine Mann, global chief economist at Citigroup, discusses the U.S. economy and Federal Reserve policy. She speaks on "Bloomberg Surveillance." https://bloom.bg/2HIAtcI (Source: Bloomberg)
Video: Steven Mnuchin Considers Trade Talk with China, TicToc Bloomberg, April 21st, 2018, U.S. Treasury Secretary Steven Mnuchin will consider a trip to China to engage in dialogue on the trade dispute #tictocnews https://www.bloomberg.com/news/videos/2018-04-21/steven-mnuchin-considers-trade-talk-with-china-video (Source: Bloomberg)
Good read: A U.S. recession ahead? Fed policymakers say not to worry, Reuters’ Tom Polansek, Ann Saphir, CHICAGO/SAN FRANCISCO (Reuters) - As the gap between short- and long-term borrowing costs hovers near its lowest in more than 10 years, speculation has risen over whether the so-called yield curve is signaling that a recession could be around the corner. https://bit.ly/2HGoY5z
Good digital quick take: Why Trump Is Targeting China's Big Economic Plan, Digital Originals - Bloomberg QuickTake, April 19th, 2018, The U.S. President's proposed trade tariffs take aim at industries in the "Made in China 2025" plan, the country's blueprint for upgrading its economy. Bloomberg QuickTake explains why. (Video by Vicky Feng) https://www.bloomberg.com/news/videos/2018-04-20/why-trump-is-targeting-china-s-big-economic-plan-video?cmpId=yhoo.headline&yptr=yahoo (Source: Bloomberg)
Video: Treasury Dept. Attempts to Curb Chinese Investments in Tech, Bloomberg Markets, April 19th, 2018, Bloomberg's Jodi Schneider explains how the U.S. plans to curb technology investments by China. She speaks with Rishaad Salamat and Haidi Lun on "Bloomberg Markets." https://www.bloomberg.com/news/videos/2018-04-20/treasury-dept-attempts-to-curb-chinese-investments-in-tech-video (Source: Bloomberg)
Citizens globally want the economic fruits of capitalism and the assumed social security of socialism. They want a government that is fiscally responsible, but socially progressive. The reality is the clear majority of the world’s population embraces, either knowingly or unknowingly, progressive authoritarian governance. Authoritarianism is a form of government characterized by strong central power and limited political freedoms. The United States of America remains the world’s only hope.
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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