February 2018 Monthly Commodity Market Overview Newsletter. Stock Index Futures

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1 February 2018 Monthly Commodity Market Overview Newsletter By the ADMIS Research Team Stock Index Futures There was a severe decline in the first week of February with S&P 500 futures posting the biggest reversal since February The decline was triggered by fears of rising interest rates and increased political tensions in Washington. However, in the following week, in a stunning reversal, the S&P 500 enjoyed its largest weekly gain since The fundamentals remain positive with most economic reports coming in stronger than expected. For example, the National Federation of Independent Business said its small business optimism index rose by a stronger than expected 2 percentage points to in January, which is the third highest reading since the NFIB began the monthly surveys in Economists expected a January reading of 106. Also, with approximately two thirds of the companies in the S&P 500 reporting fourth quarter earnings so far this season, some analysts are expecting earnings to grow 15% from the same period in Keep in mind that from when the recession lows for stock index futures were made in 2009, it has been the historically accommodative global monetary policies that have been the driver behind the meteoric price gains for stock index futures. However, from time to time, there have been a variety of geopolitical, or worrisome domestic political events that have temporarily interrupted the advance. I stress the word temporary because every time traders and analysts have become too focused on the geopolitical risk-off event of the day, the bull market for stock index futures was eventually rescued by global central bank accommodation. Even with some central banks hiking interest rates and others withdrawing accommodation, global interest rates still remain supportive to stock index futures. 1 P a g e

2 In spite of the recent correction, I am not seeing the beginning of any new long term bear market for stock index futures. The long term outlook for S&P 500, Dow Jones, NASDAQ and Russell 2000 futures appears to be higher. S&P 500 Futures -Weekly Crude Oil In late January crude oil futures advanced to its highest levels since December However, there was a 12% decline in the first part of February. Some of this correction appears to be in sympathy with the selloff in stock index futures. There have been offsetting influences with lower than expected inventories being a supportive factor in the U.S. crude trade, while refinery maintenance in several regions including Europe is putting a damper on demand for crude. Higher prices are likely for crude oil futures in light of an improving global economy. 2 P a g e

3 Crude Oil Futures - Weekly Gold From the December lows, gold futures advanced sharply moving from the area to the late January highs of Much of the strength can be attributed to increasing prospects of rising commodity inflation, as well as anticipated higher labor costs, especially now that President Trump s tax bill has passed. In addition, some analysts believe the break from the highs for bitcoin prices may encouraged buying to come back into precious metals. Also, a weaker U.S dollar, which recently fell to a three year low, has helped push prices for the yellow metal to near their highest level since August A weaker U.S. currency makes gold and other dollar denominated commodities cheaper for overseas buyers. Selling more recently was linked rising interest rates, although the weaker U.S dollar is likely to be the main driver. The long term trend for precious metals is higher. 3 P a g e

4 Gold Futures - Weekly U.S. Dollar The U.S. dollar recently fell its lowest level since January Pressure on the greenback came in spite of mostly better than expected economic news in the U.S. and despite the release of President Trump s infrastructure plans. Also, the U.S. dollar has not benefited from expectations of tighter credit from the Federal Open Market Committee. The greenback only firmed temporarily on news that the U.S. Treasury was preparing to sell $258 billion in new debt this week, which could push yields higher and, at least in theory, support the U.S. dollar. The problem for the U.S. dollar is that while the FOMC is tightening credit, other central banks are either withdrawing accommodation or raising interest rates at a faster pace. Euro Currency The euro currency advanced on news that the European Union said gross domestic product in the 19 member euro zone will grow 2.3% in 2018, raising its forecast from 2.1% in November. The economy is expected to expand 2% in 2019, which is up from 1.9% previously. The euro 4 P a g e

5 temporarily fell on news that German investor sentiment declined, as measured by the ZEW index, which fell to 17.8 in February. The median estimate was 16. In the longer term, the euro currency will be underpinned by the belief that the European Central Bank will remove some of its accommodation later this year and may actually hike interest rates in the first quarter of next year. The main trend for the currency of the euro zone is higher. Grains In February, the USDA estimated world 2017/18 corn end stocks at million tonnes. The drop was due to lower U.S. supply. Total world exports are still estimated to be near million tonnes and U.S. exports are estimated to be near 52.1 million tonnes. The trade will be watching the total South America 2018 supply. The USDA estimates the Brazil and Argentina crop near million tonnes. Some estimates are closer to Interesting to note that in their annual 10 year Ag Projections, the USDA estimates the 2027 world corn trade will be near million tonnes. The USDA estimated world 2017/18 soybean production will be near million tonnes. The drop is due to a lower Argentina crop. Total world exports are estimated to be near million tonnes versus last year and U.S. exports are estimated to be near 57.1 million tonnes versus 59.2 last year. The USDA continues to estimate China s 2017/18 soybean imports to be near a record 97.0 million tonnes. The USDA raised U.S. 2017/18 soybean end stocks to 14.4 versus 12.8 previously due to lower exports. In addition, the USDA raised the Brazil 2018 soybean crop to near despite talk the crops could be closer to It is interesting to note that in their annual 10 year Ag Projections, the USDA estimates the 2027 world soybean trade to be near million tonnes with China imports near The USDA estimated world 2017/18 wheat end stocks at a new record million tonnes. The USDA estimated total world exports at million tonnes versus last year. U.S. exports are estimated to be near 27.5 million tonnes versus 28.7 last year. The Russian wheat crop was estimated at 85.0 million tonnes versus 72.5 last year and Russian wheat exports were raised to 36.0 million tonnes versus 27.8 last year. Interesting to note that in their annual 10 year Ag Projections USDA estimate, the 2027 world wheat trade will be near million tonnes. 5 P a g e

6 Livestock Cattle January started out fairly typical for cattle futures. After moving up through the December holiday period, cattle futures peaked on January 2 nd, and dropped $6.47/cwt through January 10 th on the February 2018 contract. Traders began to react to the December 22 nd Cattle on Feed Report where placements were 14% above 2016 and expectations that slaughter would begin to quickly increase into 2018 and beef prices would fall with increased tonnage. However, slaughter levels didn t jump as fast as many traders anticipated, about 2.2% above the same time in 2016, and news of strong export demand took cash cattle and cattle futures off their lows. By the end of January, February futures were off the lows by $7.95/cwt. Export demand for 2017 made new records for value. Beef exports were $7.27 billion, up 15% above 2016 and 2% higher than the highest year of The volume of U.S. beef exported was 1.26 million pounds that was up 6% from 2016 making 2017 the fourth largest year. Live Cattle Futures - Weekly Lean Hogs January was a good month for hog producers. February 2018 futures rallied $2.50 during the month with help from a strong pork market. Also, producers took advantage of the wide premium April 2018 Lean Hogs had over February and hedged as it topped on January 8 th falling through 6 P a g e

7 the end of the month for a loss of $4.55/cwt to be just a dollar below where February lean hogs settled. U.S. pork benefited with a strong export market. For 2017 pork exports were 2.45 million metric tonnes. Exported U.S. pork topped the record of 2016 by 6%. The additional increase of hogs slaughtered in the U.S. at the end of 2017 was 2.7%, but with exports taking 26.6% of production, the increases of hogs in 2017 and January 2018 did not hurt prices. Lean Hog Futures - Weekly All charts provided by QST Support and Resistance Stock Index March 18 S&P 500 Support Resistance March 18 NASDAQ Support Resistance P a g e

8 Energy April 18 Crude Oil Support Resistance April 18 Natural Gas Support Resistance Precious Metals April 18 Gold Support Resistance May 18 Silver Support Resistance Industrial Metals May 18 Copper Support Resistance Currencies March 18 US Dollar Index Support Resistance March 18 Euro Currency Support Resistance Grains May 18 Corn Support 3.60 Resistance 3.90 May 18 Soybeans Support 9.75 Resistance P a g e

9 May 18 Chicago Wheat Support 4.40 Resistance 5.00 Livestock April 18 Live Cattle Support Resistance April 18 Lean Hogs Support Resistance If you would like more information about the markets featured in this monthly newsletter, please send us an to Thank you. ADM Investor Services, Inc. 2100A Chicago Board of Trade Building P TF Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The risk of loss in trading futures and options can be substantial. The views and opinions expressed in this letter are those of the authors and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analysts do not currently maintain positions in the commodities specified within this report. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc. 9 P a g e