Commodity markets
Holding current price could mean bullish outlook for wheat.

Synchronized global recovery underway

Market outlook considerations for the week beginning November 20, 2017

First Half of 2017

U.S. and global economic activity in the first half of 2017 gave every indication that a recession was on the horizon. Economic, social, political and military indicators all seemed to point to an increasing probability of a recession.

Even though the current U.S. economic recovery is the third longest in history, neither the U.S., other developed economies, developing economies, emerging markets, nor frontier economies have a strong enough economic foundation to weather a significant economic downturn.

In normal times a recession has more positives than negatives as an economy or economies rebalance, but the current economic times are not remotely normal.   

A U.S. recession today would have a global domino effect as country after country joined U.S. recessionary ranks. A number of countries could lead a global downturn that remains stable. They include:

  •  Chinese Credit Crisis: If China mismanaged their credit crisis, then a global recessionary domino effect would likely follow with country after country slipping into recession or worse.
  •  EU Misstep: A European Union leadership misstep could trigger a global recessionary domino effect.
  • Japanese Fiscal or Monetary Policy Miscalculation: If Japan lost focus or control of their government debt repurchase program, triggering lost global confidence, then a potential contagion would likely follow.

 Second Half of 2017

With each passing month in the second half of 2017 the U.S., Chinese, European, Japanese, etc. countries fiscal, monetary, trade and regulatory policies have met the challenges of extending the business cycle.

Visually, think about a global map of the world lying flat with the U.S. and Western Hemisphere on the left and moving left to right scanning the Western Hemisphere, Europe to Africa, Middle East on across to China, Japan, Australia, etc.

As the 2017 calendar year has progressed, massive global simulative reflationary policy activities have continually emerged, starting on the right side of our flat global map, especially in Japan and China, rolling across the global economic landscape from right to left including the Middle East, Europe, to the U.S. and Western Hemisphere in general. Massive levels of stimulus and liquidity were injected in 2017 to assure economic momentum and an expansion of the business cycle.

Economic Momentum Sustained

A global orchestrated fiscal, monetary, trade and regulatory policy effort has allowed the extension of a “Synchronized Global Recovery” for one to 3-plus years into the future.

 This implies the following will likely take place in the near and intermediate term:

  •  Global Currencies: The U.S. and Chinese currency will have more weakness than strength against most global currencies.
  • 10-year Treasury Yield: The short end of the yield curve and long end of the yield curve will have a slow rise.
  •  U.S. and Global Equities: U.S. and Global Equities will be major beneficiaries of the massive amounts of injected stimulus by most of the world’s economies.
  • Commodities: Commodities as a group will benefit over the next 12 months. Copper, base metals as a group, energy and ultimately the soft and grans sectors will be supported by building global inflationary forces.

What could derail the recovery?      

The current list of economic, social, political and military possibilities is formable and far too lengthy and detailed for this article. That said, the damage of a near term global recession provides huge incentive for a continued U.S. and Synchronized Global Recovery.  

What to expect from the markets this week, November 20, 2017

 

Market “Near Term” Snap Shot

  • 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 slowly and almost begrudgingly confirming a bottom is in place (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: Holding current price levels implies a building bullish bias (Charts 43 to 45). 
  • 10-year Treasury Yield: Presently consolidating, but remains in a Sideways-Trading-Range between 2.14 and 2.60 (Charts 1 to 3).
  •  U.S. Dollar: Possible corrective action continues, but once complete the door is open for a decline to 87 (Charts 4 to 6).
  •  Oil $WTIC: Fundamentals and global uncertainties increasingly supportive of this market (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. Allow price action to provide guidance (Chart 14).
  •  Global Equities Excluding U.S. and Canada: Momentum slowly waning, so allow price action to provide guidance (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 20, 2017”

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

 This Week’s Select Summary Considerations:

 10-Year US Treasury Yield:

  • Presently consolidating, but remains in a Sideways-Trading-Range between 2.14 and 2.60.
  • 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.
    If the yield moved above 3.00 then consideration would need to be given to a change in trend.
  • Bond yields need to hold at 1.95 or serious consideration would need to be given to ominous building economic problems.

U.S. Dollar Index:

  • Possible corrective action continues, but once complete the door is open for a decline to 87.
  • 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, then 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 $55 now appears to be giving way to $61-plus becoming a consideration.
  • A complex, volatile and an uncertain market now focused on Saudi Arabian and Iranian building friction, all deserve heightened respect in a world with building economic, social, political and homeland security uncertainties.
  • North Korea, market structure, geopolitical considerations and building possibilities of a Venezuelan civil war are just some additional considerations.

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.

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 slowly and almost begrudgingly confirming a bottom is in place.


Wheat: Holding current price levels implies a building bullish bias

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:

  • Momentum slowly waning.
  • Allow price action to provide guidance.

EEM iShares ETF, Emerging Market Equities:

  • Momentum slowly waning.
  • 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: recoats@uark.edu.

 

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

 

DISCLAIMER-FOR-EDUCATIONAL-PURPOSES

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