Why are global equity and commodity markets currently so dismal? Global growth is decelerating, and this trend may be problematic well into the first half of 2019.
Recession? No, a U.S. or global recession is not imminent, but a highly contentious and magnified period of global policy and market realignment is underway. Interestingly, this period could be supportive of some commodity prices with money rotating out of global equities into certain commodities. Also, are near term Chinese concessions related to U.S. soybeans possible? No one knows, but the answer likely emerges in the next one to two weeks.
If U.S. and global economic activity is going to be stimulus driven, global currency, bond, equity, and commodity markets will continually undergo some form of realignment. What is different about today’s realignment? The current realignment phase is exceptionally harsh, due to Chinese and Russian economic and military aggression, Middle East instability, and European Union’s economic paralysis, to only list a few.
Today’s global equity and commodity price weakness is a primary function of ongoing fiscal, monetary, trade, and regulatory disputes. The U.S. President and Congress are in negotiations with world leaders to enhance global parameters surrounding global economic and legal issues and put limits on military aggression.
- Synchronized Global Growth. A huge positive, but Global Governments and Central Banks, though they have self-serving differences, remain committed to managing global economic growth at a level that avoids a serious recession or depression.
- When is the next most likely major recession? Opinions vary from one to five years. I presently do not expect the next major recession, plus or minus a year, until around 2023, but mini-corrections, like we are currently experiencing, between now and the next major recession may become the norm.
- Marketing Requires Assistance from Professional Experts. Global markets are fluid, dynamic and require constant monitoring, so strong relationships with one’s marketing firm (s) and advisor (s) is a must. Since no one can predict market outcomes with certainty, all market participants and analysts are in a continual analytical mode and refining their expectations, outlook, and marketing strategies.
- Global Government Partnership. The economic partnership between global governments is one of absolute necessity. That said, currently, the relationship between governments is extremely turbulent and unstable, which lead to fears of a looming recession.
- Why not allow a global economic reset by way of a recession and avoid the ongoing massive stimulative global activities? The world’s economies are debt burdened to the extent a near term recession would be extremely dangerous with a highly uncertain outcome. Ultimately, global governments continue to partner and avoid a major global economic downturn, because a global recession today could spiral into a depression or worse.
- Mini Corrections. The current U.S. business cycle is the second longest in history, and if U.S. and global growth is going to be extended through continuous stimulus driven global growth activities, global currency, bond, equity and commodity markets must be continually realigned to avoid asset bubbles and disproportionate economic burdens between countries, as well as allow for the orderly maintenance of economic momentum and financial stability.
Market expectations for the week of November 26, 2018
U.S. 10-Year Treasury. Yield Sideways to Down – Near term anemic global growth and accompanying deflationary forces have weakened the 10-year bond yield. This market is presently defining an intermediate trading range likely between yields of 2.70 to 3.32. The near-term yield trend is sideways with a lower yield bias. (November 23, 2018 – 3.05) Charts (A1-A4)
U.S. Dollar. Corrective Pullback Desirable (Not Required) Before Moving Higher – The dollar likely has more strength than weakness until global deflationary forces are offset by significant amounts of global stimulus, which is to say, expect more strength than weakness in the dollar into possibly mid-year 2019. (November 23, 2018 – 96.82) (Possible Upside 110) Charts (A5-A13)
$SPX 500. Sideways Trading Range being defined, Cautionary Times – The index needs to hold above 2537 or additional price weakness becomes problematic. The headwinds are the global slowdown and building deflationary forces. On the positive side, seasonality and global demand are working in favor of this market. Charts (A14-A18)
Global Equities. Sideways, Caution Period of Individual Country Selection – Near term ongoing policy discussions between the U.S. and its economic and trading partners likely limit upside potential of many of these markets. The Global Equity Index (EFA), Emerging Markets (EEM), and Frontier Markets (FM) mostly sideways with downside bias over the next several weeks. The strongest and most stable index will likely be the global index, followed by the emerging market index, and the frontier index will likely be the weakest index over the next several weeks. Charts (A19-A29)
$WTIC Oil. Bearish, Bottom May Not Be In-Place - $WTIC oil prices need to hold above $48.13 or significantly lower prices may emerge. Political dynamics and fundamental crosscurrents are challenging, JUST FOLLOW THE PRICE ACTION. (November 16, 2018 - $56.68), Charts (B6-B9)
Soybeans. Sideways, Retesting Resistance, Defining Trading Parameters - Soybeans (November 23, 2018 - $8.81 per bushel) to-date have not been able to overcome heavy resistance. Until soybean prices close and hold above $9.07 per bushel, I remain more concerned about the downside to $8.12. Charts (B10-B13)
Corn. Neutral to Bearish - This market needs to end the week of November 26, 2018 above $3.64 per bushel for me to consider any additional near-term upside. (November 23, 2018 - $3.59 per bushel). Charts (B14-B17)
Wheat. Sideways to up in a Very Slowly Unfolding Pattern - Wheat prices need to end the week of November 26, 2018 above $5.05 per bushel to indicate a stronger bearish trend is not gaining momentum. (November 23, 2018 - $5.09 per bushel) Charts (B14-B17)
Long Grain Rice. Sideways to Up – January rice holding above $10.76 per cwt. would be positive for potential additional upside price strength to $11.27. That said, global deflationary forces coupled with fundamentals continue to weigh heavily on this market without significant new business. (Chart B18-B20)
Cotton. Bearish, Global Deflation Forces Weighing Heavy Cotton Prices - Key consideration: If cotton can finish the week of November 26, 2018 above December 77.86 cents per pound, this market still has potential to regain upside price momentum, given today’s global economic setting. Finishing the week of November 26, 2018 below 77.86 cents per pound would likely indicate potential serious price weakness lies ahead (November 23 – 77.22 cents per pound). Charts (B21-B24)
Livestock. Primary Trend is up in Lean Hogs, Feeder Cattle, and Live Cattle
Gold and Silver. Neutral to Potentially Bullish - Gold and silver could find some near-term price support, especially if the dollar continues to correct its upside move.
Dr. John Robinson Cotton Video
Cotton Market and Risk Management (including insurance and policy thoughts) Outlook Video with Dr. John Robinson, Professor and Extension Economist - Cotton Marketing, Recorded November 15, 2018 Link to view: click or cut and paste https://bit.ly/2Tovd0D
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