Cotton Market
Cotton market "grinding" upward.

Global equity market correction weighing heavy on commodity market

Market outlook considerations for the week beginning February 12, 2018

Aggressively accommodative global governments and central banks have an agenda to extend the business cycle and to maintain global economic momentum at all costs. These actions likely will create market bubbles or excessive movements in financial asset classes like equities or stocks, fixed income or bonds, cash equivalents or money market instruments, real estate, commodities, and fine arts.

Also likely are currency market distortions, expanding debt burdens and deficits through borrowing or simply money printing.

From 2016 into 2017 global governments and central banks, through financial engineering, met with success in extending the business cycle or maintaining economic momentum, but met with very limited success in overcoming chronic slow global growth, low to negative interest rates globally, and stubbornly low inflation rates. Why? The debt burden in all countries was, and is, a huge burdensome drag on economies. 

Globally, governments and central banks in 2017 found their fiscal, monetary, trade and regulatory policies at a crossroads, simplistically stated as:

  • Option Not Chosen: They could allow markets globally to correct with hopes of managing a U.S. and global recession. Managing a U.S. and global recession even today would likely have a low probability of success for an array of social, economic and political reasons. So not choosing this option, as far as the near term is concerned, is very appropriate, but longer term, that is another issue.
  •  Chosen Option: They could globally financially engineer an extended country-by- country growth cycle through accommodative government and central bank intervention policy activities.

 Tidal Wave of Global Stimulus

Interestingly in 2017, speaking in broad terms, global social and political stability was maintained and stimulus-driven economic growth achieved through an array of fiscal, monetary, trade and regulatory policies. The price of which was expanding asset bubbles and currency distortions, which is near term better than the alternative.

Just realize that as stimulative asset bubbles appear they will need a period of contraction or correction before moving higher, just like the present period, if the objective is a multiple year period of sustained growth, stable to higher interest and inflation rates.   

Reality is, orderly asset growth is presently mandatory to avoid massive recessionary challenges both domestically and globally.

The problem for grain prices is that they are at decade low prices in real dollars, and with the decline of markets globally this past week, even rice, grains and soft commodities saw momentum and/or price weakness. 

 Multiple year stimulative growth now in play

 Globally governments and central banks in 2017 met their objective of “Enhanced Stimulus Driven Growth,” and appear to have a high probability of success in 2018 and potentially into 2019. Is it possible beyond? By success I mean stable to slightly rising interest rates and achievement of individual country growth and inflation objectives. What could derail U.S. and global orchestrated stimulus driven growth? Social and political instability, unchecked military aggression by a number of countries, and certainly unmanaged “market bubbles.”

 Managing Market Bubbles

Certainly market bubbles have emerged in most global equity or stock markets and in some building bubble concerns in commodity markets with oil being a primary concern. My assumption is global governments and central banks have a multiple year growth objective similar to 2017 for 2018 and 2019 and possibly longer.  

 What to expect from the markets this week, February 12, 2018

 Market “near term” snap shot

  • Rice: September futures likely have more weakness than strength as market participants digest the potential of a significant expansion of 2018 U.S. long grain rice planted acres (Charts 38 and 39).
  •  Cotton: It will be interesting to see how the global equity correction affects cotton prices this week. Cotton prices still appear to be in a slow grind to the upside (Chart 40 to 42).   
  •  Soybeans: 2018 is likely a good year for grain prices, but given the current global equity correction near term, it is still not obvious that this market has either fully corrected or found a bottom (Charts 32 to 34).
  • Corn: Slowly losing momentum as global markets correct, this market needs to move and hold above $3.63; patience is all important (Charts 35 to 37).
  •  Wheat: Slowly losing momentum; this market needs to close the week above $4.70 to regain bullish momentum (Charts 43 to 45).
  • 10-year Treasury Yield: Closing above 3.00 starts the process of considering a 36 year trend reversal, difficult presently to see the 10-year above 3.30 this year, but that certainly can change (Charts 1 to 3).
  • U.S. Dollar: Correcting downside move before moving lower to possibly 78; consider the possibility of an extended correction (Charts 4 to 6).
  •  Oil $WTIC: A corrective period underway; this is a market that likely needs to redefine its near term bottom and define a 2018 trading range, given both global growth optimism and uncertainties; one still has to be concerned more about the upside than the downside in prices (Charts 29 to 31).
  •  $CRB Commodity Index: A dangerous potential retest of support is now underway; extreme caution is advised near term, an additional 10 percent global equity correction over the next 3 to 6 weeks would likely be very bearish for this index (Charts 26 and 28). 
  •  S&P 500: Correction underway; allow price action to provide guidance (Chart 14).
  •  Global Equities Excluding U.S. and Canada: Correction underway; allow price action to provide guidance (Chart 16).
  •  Feeder Cattle: Sideways to up.    

 

In addition to the following “Expanded near Term Market Outlook Considerations for Week Beginning February 12, 2018”

This Week’s Select Summary Considerations:

•        10-Year US Treasury Yield:

•        Closing above 3.00 starts the process of considering a 36 year trend reversal, difficult presently to see the 10-year above 3.30 this year.

•        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 cycles.

•        Lower yields would be a function of: demand, economic weakness, event risk concerns, or other market concerns/factors could take the yield lower.

•        U.S. Dollar Index:

•        Correcting downside move before moving lower to possibly 78; consider the possibly of an extended correction.

•        After correction, 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 major low for the dollar.

•        CRB Index:

•        A dangerous retest of support is now underway; extreme caution is advised near term; an additional 10 percent global equity correction over the next 3 to 6 weeks would likely be very bearish for this index.

•        On-going policy intervention will be supportive of general commodity sector, but near term support may not be visible in positive chart activity.

•        Global government and central bank actual and anticipated intervention indicate a building fruit-bearing process will emerge.

•        $WTIC Light Crude Oil:

•        A corrective period underway; this is a market that likely needs to redefine its near term bottom and define a 2018 trading range, given both global growth optimism and uncertainties.

•        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, and all  deserve heightened respect in a world with building economic, social, political and homeland security uncertainties.

•        Expanding global demand — Saudi Arabia, Russia, OPEC, other oil producers, and other factors have a major role in limiting price downside.

•        Soybeans:  2018 is likely a good year for grain prices, but given the current global equity correction near term it is still not obvious that this market has either fully corrected or found a bottom. 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, investors and end-users.

•        Corn: .Slowly losing momentum as global markets correct, this market needs to move and hold above $3.63, patience is all important.

•        Long Grain Rice: September futures likely have more weakness than strength as market participants digest the potential of a significant expansion of 2018 U.S. long grain rice planted acres.  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: It will be interesting to see how the global equity correction affects cotton prices this week. Cotton prices still appear to be in a slow grind to the upside.

•        Wheat: Slowly losing momentum, this market needs to close the week above $4.70 to regain bullish momentum.

•        SPY SPDR S&P 500 ETF: Correction underway. Allow price action to provide guidance.

•        $COMPQ Nasdaq Composite: Correction underway.Allow price action to provide guidance.

•        EFA iShares ETF - Global Equities Excluding U.S. and Canada: Correction underway.Allow price action to provide guidance.

•        EEM iShares ETF, Emerging Market Equities: Correction underway. Allow price action to provide guidance.

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

 DISCLAIMER-FOR-EDUCATIONAL-PURPOSES

 

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TAGS: Cotton Wheat Corn
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