Wheat Outlook
Wheat market weakenss continues.

German stability may be faltering

German stability is key to global economy

Within the European Union German stability is being scrutinized by global analysts as Germany's Chancellor Angela Merkel struggles in her fourth term to form a dominant coalition government.  

On September 24, 2017, Merkel won a historic fourth term, but the margin of victory has left her scrambling to form a dominant governing coalition. Merkel, one of the most powerful and dominant European leaders, claimed election victory, but with only 33 percent of the votes for her Christian Union party.

Merkel’s closest rival, Martin Schulz, representing the Social Democrats, only achieved around 21percent of the votes, with four other parties splitting the remainder of the votes.

Key Points:

The German population is politically fragmented, which is a growing problem in other countries around the world.  

For currency, bond, equity and commodity markets globally, confidence in Germany’s economic, social and political stability is all important, but presently confidence is increasingly coming into question. Why?

Merkel needs a majority coalition in Germany’s government to achieve party goals and maintain stability.

To-date, since the election Merkel has not met with success in forming a Grand Coalition governing group. A week ago, November 19, 2017, the pro-business Free Democrats, Merkel’s Christian Union Party, and the Greens Party reached an impasse as coalition talks broke down.

The week of November 20, 2017, analysts have increasingly become concerned about Merkel’s political ability to lead Germany effectively.

The Social Democrat Party on November 24, 2017, reversed a previous decision and is showing willingness to meet and talk with Chancellor Merkel, which, if successful, would allow the continuation of a “Grand Coalition” similar to the one which ruled Germany the precious four years. 

What Is at Stake?

First, it is absolutely imperative that global leaders and market analysts not lose confidence in Germany's Chancellor. Merkel’s continued domestic, regional and international leadership remains critically important to near term global growth.

Second, a loss of confidence in Merkel domestically would undermine Germany’s European Union leadership, which in turn would undermine the fragile economic, social and political fabric of the European Union.

Third, to global market analysts, a further weakened European Union would be negative not only for European Union growth but for global growth, implying a global recession arrives sooner rather than later.

Fourth, the global economies and markets are tightly linked. Concerns about a viable German economy create concerns about the viability of the European Union, which creates global economic concerns.

Global Growth Anticipated   

Markets presently are anticipating that Germany’s regional and global leadership role will remain intact, and that Merkel and the Social Democrat Party will form a “Grand Coalition” which means:

  • Global growth remains synchronized and robust;
  • The U.S. and Chinese currencies will have more weakness than strength against other currencies for a period;
  • Global equity markets should show positive returns; and
  • Global commodity markets should become increasingly bullish. 
  • What to expect from the markets this week, November 27, 2017
  • Market “Near Term” Snapshot
  • Rice: This market is moving closer to confirming current price action is corrective with another leg to the upside (Charts 38 and 39).
  • Cotton: Cotton prices are turning to the upside (Chart 40 to 42).   
  • Soybeans: A complex market that is likely building a base before moving higher, holding $9.70 likely important to near term price strength (Charts 32 to 34).
  • Corn: Searching for a low, so assume bearish until price action becomes more supportive of a bullish case and give consideration to prices possibly moving to their previous 2016 lows of $3.15 or below (Charts 35 to 37).
  • Wheat: Wheat appears to have additional price weakness into the 3.90 area (Charts 43 to 45). 
  • 10-year Treasury Yield: Consolidating with new highs possible to 2.75 (Charts 1 to 3).
  • U.S. Dollar: Corrective action appears complete; a decline to 87 now should be considered (Charts 4 to 6).
  • Oil $WTIC: Fundamentals and global uncertainties increasingly supportive of this market. Price action to $62-plus a consideration (Charts 29 to 31).
  • $CRB Commodity Index: Macro factors and chart structure imply continued cautious optimism, though some backing and filling may be in order (Charts 26 and 28). 
  • S&P 500: Cautionary time period. Consolidation or correction desirable not required 
  • (Chart 14).
  • Global Equities Excluding U.S. and Canada: Trend remains up. Momentum slowly waning (Chart 16).
  • Feeder Cattle: Near term high likely in place, consolidation or corrective price action underway.  

In addition to the following “Expanded near Term Market Outlook Considerations for week beginning November 27, 2017,” Download Slide Show for charts and expanded details, Click Download Link

This Week’s Select Summary Considerations:

10-Year US Treasury Yield:

  • Consolidating with new highs possible to 2.75.
  • Higher yields have been in part a function of U.S. and Global market intervention activities designed to extend domestic and global growth and the business cycle.
  • Lower yields are a function of: demand, economic weakness, event risk concerns, or other market concerns/factors could take the yield lower.

U.S. Dollar Index:

  • Corrective action appears complete, a decline to 87 now should be considered.
  • Given global macro considerations coupled with no significant global anomaly event moving forward this index may have some serious weakness.
  • Unless Middle East, North Korean, European, Venezuelan or other anomaly events start to dominate market participant decisions, we are still in search of a low for the dollar.

CRB Index:

  • Macro factors and chart structure imply continued cautious optimism, though some backing and filling may be in order.
  • Global Government and Central Bank actual and anticipated intervention indicate a slow fruit bearing process underway.
  • Bigger Picture: Though dangerously spastic, global macro and growth forces in general remain supportive of the commodity sector.

$WTIC Light Crude Oil:

  • Fundamentals and global uncertainties increasingly supportive of this market.
  • Price action to $62-plus a consideration. 

A complex and volatile market focused on global uncertainties like Saudi Arabian and Iranian building friction, other Middle East challenges, North Korea, market structure, geopolitical considerations and building possibilities of a Venezuelan civil war are just some additional considerations all deserve heightened respect in a world with building economic, social, political and homeland security uncertainties.

Soybeans:

  • A complex market that is likely building a base before moving higher, holding $9.70 likely important to near term price strength. 
  • A world awash in liquidity, building economic momentum and many hard assets seemingly overvalued, be careful not to overlook the possible attractiveness of this asset to speculators and investors.
  • A Cautionary Consideration: Until this market breaks out, remain mindful a retest of the $9.36 area or potentially lower remains a possibility.

Corn:

  • Searching for a low, so assume bearish until price action becomes more supportive of a bullish case and give consideration to prices possibly moving to their previous 2016 lows of $3.15 or below.

Long Grain Rice:

  • This market is moving closer to confirming current price action is corrective with another leg to the upside.
  • Remain aware of potential near term uncertain global economic crosscurrents related to currencies, bonds, equities and commodities as they go through a rebalancing process.

Cotton:

  • Cotton prices are turning to the upside.

Wheat:

  • Wheat appears to have additional price weakness into the 3.90 area.

SPY SPDR S&P 500 ETF:

  • Cautionary time period.
  • Consolidation or correction desirable not required. 
  • Allow price action to provide guidance.
  • $COMPQ Nasdaq Composite:

Passive investors have lifted this market to a level that one must now focus on the risk vs reward of holding the index near term, that said the market appears to be trying to regain momentum.

  • Allow price action to provide guidance.
  • EFA iShares ETF - Global Equities Excluding U.S. and Canada:
  • Trend remains up.
  • Momentum slowly waning.
  • Allow price action to provide guidance.
  • EEM iShares ETF, Emerging Market Equities:
  • A cautionary time period with momentum uncertain.
  • Allow price action to provide guidance.

 

 

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

 

 

 

DISCLAIMER-FOR-EDUCATIONAL-PURPOSES

 

 

 

 

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