No country globally rivals China’s predatory and protectionist practices. President Trump has justification to demand a higher level of Chinese global citizenship and trade fairness. The immediate question becomes which U.S. sectors are the near, intermediate, and longer-term winners and losers.

The agricultural sector has gone through a lengthy consolidation period. The ongoing building global fiscal, monetary and trade friction has the potential to extend the ag sector’s consolidation period. Consider:

Strategic Planning

China has few, and some would say no, equals when it comes to a long-term strategic fiscal, monetary, trade, and regulatory policy plan.

See also: Tariffs could reduce value of U.S. farm exports to China by 40%

Predatory: In modern times, no country has positioned itself to prey on such a large number of the world’s economic, social, and political systems as has China. Their aggressive regional and global territorial influence is highly intimidating, aggressive, and predatory.

Protectionism: China is by far the most protectionist country in the world. The European Union comes in second. The European Union near-term is likely the biggest threat to global economic stability, but that is a discussion for another article.

President Trump: “From now on, we expect trading relationships to be fair and to be reciprocal.” He states his position:

China has consistently taken advantage of the American economy with years of unfair trade practices that undermine fair and reciprocal trade.

In January 2018, the Trump Administration found that China’s overproduction of steel and aluminum, and the resulting impact on global markets, is a circumstance that threatens to impair America’s national security.
The United States has run a trade in goods deficit with China for years, including a $375 billion deficit in 2017 alone.
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The Week Ahead July 2, 2018 

10-Year US Treasury Yield: Weakening and defining a new trading range due to the building global slowdown.  For the week of June 29, 2018, the 10-Year US Treasury Yield ended the week down 1.72 percent at 2.85 percent.  The 10-Year U.S. Treasury Yield is building a lower trading range. For a multi-month period this market likely trades in an interest rate range of 3.0 percent on the upside and 2.5 percent on the downside before moving higher.

The Fed Fund Rate was increased .25 percent at the June 13, 2018, meeting to 2 percent. Global fiscal, monetary, and trade policy friction may stand in the way of the anticipated rate hike of .25 percent at the next Federal Reserve Open Market Committee (FOMC) meeting on September 25-26, 2018. (Charts A1-A4)  Presently, I have no expectation of a rate increase at their December 2018 meeting. The Fed is positioning to maintain a balanced yield curve as the year progresses by continuing to shrink their balance sheet. The upward trend of U.S. interest rates is essential to the financial health of pension funds, individuals, and businesses dependent on a more normalized interest rate.

Prolonged Business Cycle: Understand, global governments and central banks continue positioning to prolong the business cycle for an extended period of two to three or more years, which implies slowly rising interest rates and inflation over that period.   

U.S. Dollar Index: Sideways consolidation likely this week, but bullish bias near-term remains dominant as long as global growth is decelerating. With the dollar index presently at 94.35 (Charts A5-A8) and off its low of 88.15, the index is in a slow determined corrective grind to the upside. Why? The corrective global slowdown is normally bullish for the U.S. dollar and this time is no different.  

The dollar has entered a possible two to three or more months of more strength than weakness with an upside potential target of 97 to 100 before returning to the dominant downside trend. Understand, the dominant downside trend cannot continue without a resumption of global growth.

This is an extremely challenging market and chart strength or weakness is highly dependent on global government and central bank orchestrated fiscal, monetary, trade, and regulatory policy objectives being achieved, which results in collective global growth.

Since the U.S. Dollar strength has negative economic consequences to frontier, emerging, and developing economies that mostly borrow in dollars, a prolonged rise in the dollar moves country after country toward their own economic slowdown. This is a key reason for the collective ongoing global economic slowdown; therefore, we will closely monitor this market and adjust our expectations accordingly. What could keep the dollar index rising? One near-term factor is European Union collective and individual social, economic, and political mismanagement of their region and individual countries, as well as building U.S. and Chinese trade friction.  

S&P 500: Bullish bias with corrective period before moving higher. Price did not hold 2720, which implies additional downside should be expected. Prices falling through 2560 would be near term bearish, but market cleansing. The trend in this market remains up: Consider:

Bottom-line: Just let price action provide guidance until stronger momentum is regained. Note the collection of attached Equity Charts A14 to A28.

$WTIC Light Crude Oil: Bullish with prices sideways to up. Why would oil prices move higher? Stimulus driven global growth over the next two to three or more years remain the driver as supply increasingly struggles to keep up with demand. The length of the current global economic slowdown is increasingly debatable. I have anticipated a slowdown into mid-August, but that expectation may need to be advanced one or more months.   

Two major supply concerns:

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 they do not appear to be losing their influence anytime soon.

CRB Commodity Index: Correction maybe complete with the index sideways to up being led by higher oil prices. Commodity bulls need to see this index push through resistance at 205 (currently at 200). Commodity bears need to see this index not hold support at 185. This would likely imply major across-the-board commodity weakness for a period.

Of Interest:

Commodity market outlook webinar: What’s in store for grains and cotton?

 Ted Nelson looks forward at corn, rice, soybeans, wheat and cotton markets and the market factors/outside influences still at play in a July 5 webinar. Nelson analyzes price trends, current and predicted geopolitical issues, global supply/demand functions, and fluctuations in the global economy to help you understand how these factors affect markets.

Nelson is a Risk Management Consultant for INTL FCStone Financial Inc., FCM Division, which provides full-service, 24-hour futures and options brokerage, advisory, clearing and execution services on commodity exchanges worldwide. He provides daily and extended market commentary and analyses of futures and cash markets. Specialties include rice, corn, soybean and wheat. He works directly with customers in a rapidly changing marketplace, managing customers’ price risks and helping them stabilize profitability. Nelson is the author of INTL FCStone Inc.’s quarterly rice outlook.

The webinar begins at 10 a.m. Central Time.

 Link to Register:  http://bit.ly/UAEX-Market-Outlook-Nelson-FCStone

 Rice, Grain and Cotton Charts B1-B28 in Chart Book

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].

 Download Slide Show for charts and expanded details, Click Download Link

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