Rice Markets

Global equity market, correction or continuance?

Global equity market correction continuance? Impact on commodity markets?

Two key market questions occur as we enter the week of February 19, 2018. First, has U.S. and Global equity markets finished a corrective period? And, second, what is the impact on the rice, grain and cotton prices?

 Some, actually I expect most, of the world’s largest market-makers find today’s stimulus-driven markets historically challenging to navigate, at least for modern times. Knowing what is going to happen is vastly different than knowing when it is going to happen as global governments and central banks intervene to maintain economic momentum.

 The S&P 500 was down 11.83 percent from its top, but last week regained 65 percent of its loss. If one takes into account current global financial engineering and valuation metrics of this equity market, then one could, over the next 3 to 8 weeks, expect an additional downside move in this market, and most global equity markets, or at the very least sideways price action, which would likely be bearish for the commodity sector. Always remember, markets will always move in a direction that negatively impacts the most market participants.

 Year to date (February 16, 2018)

  • The equity volatility index has awakened from hibernation and is up 76 percent, volatility has returned to the market.
  • The 10-year U.S. Treasury yield is up 20 percent, suggesting, stimulative global growth is gaining some respect.
  • The dollar is down 3 percent and the EURO is up 3.3 percent, an import relationship if sustained U.S. and global growth continues through 2018 and into 2019.                                                                                                                                                                                                                        

 Select equity markets year to date -

    S&P 500 is up 2.2 percent; the NASDAQ up 4.9 percent; one global index EFA the world, less U.S. and Canada, up 2.2-percent; Emerging Market Index up 4.9-percent; Brazil up 12.6 percent; Canada down 4.6 percent; China up 7 percent; Japan up 2.8 percent; Russia up 8.4 percent; and India down 2.9 percent
  • The $CRB commodity index is down .2 percent, oil or $WTIC up 1.9 percent, natural gas down 13.4 percent, and copper down 1.6 percent.
  • Soybeans are up 6.2 percent.·     
  •  Corn is up 4.8 percent.
  •  Cotton is down 1.9 percent.
  • Wheat is up 7.2 percent.

 Expanded near term market outlook considerations for week beginning February 19, 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 yield 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:

  • Consider the possibility of a continuing correction with a downside move to possibly 78.
  • Given ongoing global policy drives’ impact on the global macro setting, coupled with no significant global anomaly event moving forward, this index could 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 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 expectations 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; all deserve heightened respect in a world with building economic, social, political and homeland security uncertainties.

Soybeans:

  •  2018 is likely a good year for grain prices, presently assuming the global equity correction has not completed, then currently pushing above 10.31 may have some challenges; that said, a breach of 10.31 would imply possible price strength into the 11.00 area.
  •  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, this market needs to hold current price levels above $3.63 or corrective price action will follow.

Long Grain Rice:

  • Old crop rice needs a new demand source for additional sustained price strength, and 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:  Cotton prices still appear to be in a slow grind to the upside, but current price levels need to hold.

Wheat: Corrective price action underway, this market needs to close and hold 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.

 

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

 

 

 

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