Stimulus driven global growth appears to be paying dividends as many global market participants, at least near term, are major buyers of global equities and commodities.
Crude oil $WTIC prices are now at their highest price levels since late 2014, and energy stocks are growing in demand due to the building inflationary expectations. U.S. Small Cap, Mid Cap, and Large Cap Stock prices are all grinding higher. Most foreign stock markets are regaining price momentum. Cotton is bullish, while the grain markets are correcting their upside price move. This is an important week for grains. Given last week’s bearish price behavior, grains now need to show some resilience given building global inflationary forces.
Here’s what we’re expecting for the week of May 14, 2018.
Oil, $WTIC, remains bullish; cotton remains bullish; the Dow, S&P 500, and NASDAQ Composite prices are rising, possibly re-testing previous highs; many foreign stock markets are showing strengthening prices. But, soybean support needs to hold at $9.80 to remain near term bullish; corn support needs to hold at $3.91 to remain near term bullish; wheat support needs to hold at $4.90 to remain near term bullish. Rice: new crop price a function of planting expectations.
The U.S. Dollar is correcting some of the near-term gains before moving higher; and the 10-Year U.S. Treasury Yield is tight in a sideways trading range.
The Week Ahead May 14, 2018
10-Year US Treasury Yield: The 10-year treasury yield should be relatively subdued this week as the yield likely continues moving sideways in a tight trading range. On April 25, 2018, the 10-year US Treasury Yield broke the 3 percent barrier. For a multi-month period this market likely trades in an interest rate range of 3.3 on the upside and the downside to 2.66. (Charts A1-A4)
U.S. Dollar Index: With the dollar index presently at 92.4 (Charts A5-A8) and off its low of 88.15, the index is due some additional minor correction or consolidation from its recent high of 93.26. Beyond any near term corrective activity, the dollar has entered a possible one to two or more months’ period of more strength than weakness, with an upside potential target of 96 to 98 before returning to dominate downside trend.This is an extremely challenging market since the U.S. Dollar strength has negative economic consequences to frontier, emerging, and developing economies, so we will closely monitor this market and adjust our expectations accordingly.
S&P 500: Likely a bullish week, but the global equity markets are dynamic and stimulus driven, so let price action define market direction.Prices holding above 2720 would be near term bullish, with a potential to retest previous highs of 2873 and prices falling through 2560 would be near term high-anxiety, but market cleansing.The trend in this market remains up, but one should anticipate an additional one to two or more 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. Note the collection of Equity Charts A14 to A28. NASDAQ Composite Index: Just let price action provide guidance and be an active risk manager. The trend in this market is up, but be respectful of the dynamics of this market.
This high visibility market where speculative interest, high frequency traders, passive investors, etc. dominate price action absorbs its energy and leadership from the likes of Facebook, Apple, Google, Amazon, Netflix, Microsoft, etc. These high-tech giants will continue experiencing on-again and off-again headwinds on several different fronts extending beyond consumer privacy rights.
$WTIC Light Crude Oil: This is a market that appears to be in “Breakout Mode.” My present working thesis is that this is also a market in search of a top, possibly in the $85 area, before starting a grind lower. Alternative thesis: This is a market in search of a top, possibly in the $85 area before becoming range bound in a sideways trading range of $55 to $75 for possibly a multiyear period.
A continuation of the oil breakout will be more positive than negative for the commodity sector as speculative and value investors scan the commodity complex for speculative and value investments. An interesting array of factors from fundamentals, to global policy drivers, to social, economic, political, and military uncertainties keep this market elevated, and they do not appear to be losing their influence anytime soon.
CRB Commodity Index: In a word, bullish, as ongoing global stimulus driven growth, coupled with geopolitical concerns, appear to be near term supportive of the commodity sector. With ongoing global equities realigning with global currency, bond and commodity markets, near term, the index needs to push through resistance at 205 (currently at 203.6). On the downside, the CRB Index needs to hold near term support at 195 and longer term support at 180, otherwise, major across the board commodity weakness could emerge.
Ag Sector and Trade: May 10, 2018 - Faltering Chinese soybean demand dents Brazil's chances of trade war bonanza, by Naveen Thukral, Dominique Patton
SINGAPORE/BEIJING (Reuters) - An unexpected drop in short-term Chinese purchases of Brazilian soybeans is denting exports of the oilseed from the South American nation, which just a few weeks ago looked poised to benefit from a Washington-Beijing trade war.
Chinese importers rushed to buy Brazilian beans after Beijing proposed a 25 percent tariff on U.S. cargoes on April 4, but short-term purchases have dried up since last week as the world’s top importer grapples with weak demand at a time of abundant local supply, trade sources said.
“All the panic buying that we saw earlier in April has died down,” said a trader at an international trading firm that runs oilseed processing facilities in China. Continue reading https://reut.rs/2Gfz5JE
Rice, Grain and Cotton (Charts B1-B28 in Chart Book)
- Soybeans: For the week of May 14, 2018, soybean prices first need to hold $9.80 per bushel to remain in a corrective period with the near-term expectation of grinding out higher prices. Otherwise, this market could be facing some serious price weakness to $9.47 and then $9.01. Reality is this market has spent almost three months moving sideways without a bullish or bearish commitment, so we sit back and watch the price action.
- Corn: Corn lost some serious momentum the week of May 7, 2018. If corn prices can hold $3.91per bushel, price may move to its June, 2016, high of $4.39 per bushel and a possible secondary target of $4.83 per bushel. Corn ending the week of May14, 2018, below $3.91 per bushel opens the door to a possible decline to $3.64 per bushel.
- Wheat: Wheat needs to hold above $4.90 the week of May 14, 2018, to maintain a near term potential of higher prices.
- Long Grain Rice: 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 in 2018; therefore, long grain planted acreage needs to remain close to the acreage figure released in the March 29, 2018, USDA Planting Intentions Report.
- Cotton: Cotton prices remain strong with the objective of moving to, and possibly through, the 89-cent area.
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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