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MARKET OUTLOOK FOR UNITED STATES & SOUTH AMERICA
Grain Market Outlook for the United States and South America by Steve Freed, Vice President of Grain Research, ADM Investor Services
The following report in an overview of the U.S. and South America economic, political and crop situation as of November 21, 2018. This report is intended to be informative and does not guarantee price direction.
From mid-October to mid-November soybean and corn and futures traded mostly sideways. Lower U.S. 2018 crops offered support, but uncertain demand and talk of higher 2019 crops offered equal resistance. Wheat futures traded lower. Slow U.S. export demand and talk of higher 2019 world supplies offered resistance. The USDA November crop report was neutral to friendly. In November, the USDA estimated the 2018/19 soybean yield to be lower than in October. The corn yield was also lower.
January soybeans are near $8.80 and March corn is near 3.70. March Chicago wheat is near 5.10. The S&P 500 stock index is near 2650 and January crude oil futures are near $54.65. Global geo political issues and a slower world economy have kept currency, energy and financial markets volatile. The U.S.-China trade issue remains a big soybean price unknown. Managed funds continue to be net soybean, soyoil and wheat shorts and small net soymeal and corn longs. The South America 2019 crop weather is mostly favorable.
USDA estimates U.S. 2018/19 corn carryout near 1,736 (-77)
USDA estimates U.S. 2018/19 soybean carryout near 955 (+70)
USDA estimates U.S. 2018/19 wheat carryout near 949 (-7)
World 2018/19 corn end stocks are estimated at 307.5 mmt (-33.4)
World 2018/19 soybean end stocks are estimated at 112.1 (+2.1)
World 2018/19 wheat end stocks are estimated at 266.7 (+6.5)
Although the economy remains mired in recession, the latest political developments and available economic data provide a glimmer of optimism. On October 25, the lower house of Congress approved the 2019 austerity budget, and the following day the IMF formally approved the revised standby agreement. Meanwhile, financial markets seem to have welcomed the new monetary strategy with the net demand for foreign assets moderating in September.
Conservative Jair Bolsonaro was elected president on October 28, after a polarizing and turbulent election cycle. Bolsonaro campaigned on a largely market friendly platform, promising to continue with economic reforms and curb the worrisome fiscal deficit, which should bode well for the economy going forward if enacted. That said, Bolsonaro is a controversial and wildcard figure. He could have difficultly drumming up support in Congress to pass legislation throughout his tenure, while some uncertainty remains regarding his incoming policies. Meanwhile, there has been mixed economic data recently. The unemployment rate fell in the third quarter and consumer confidence jumped in October, providing positive signs for household spending. However, industrial production contracted sharply in September and business confidence declined further in the following month.
Stock Index, Currency, Crude Oil and Precious Metals Futures Markets Outlook by Alan Bush, Senior Financial Economist, ADM Investor Services
The following report is an overview as of November 21, 2018 and is intended to be informative and does not guarantee price direction.
Recent weakness in stock index futures was due to ongoing political uncertainties in Europe, questions concerning the fate of the U.S.-China trade talks and fears of a slowing global economy.
Also, recent economic reports have been weaker than expected. For example, orders for durable goods in October, which are products designed to last at least three years, decreased 4.4% from the prior month. That was the largest monthly decline in new orders since July 2017. Economists had expected a 2.6% decline for orders last month. In addition, housing starts in October were 1.228 million, which compares to expectations of 1.240 million.
In spite of the recent pressure on stock index futures, history has shown that U.S. equity markets after the midterm elections have a tendency to advance through year-end and also into the following year. The third year of a presidential term is historically the strongest year for stock index futures.
The next advance for stock index futures will take place when central banks around the world that are hawkish, such as the Federal Reserve, realize they need to be less aggressive in hiking interest rates and those central banks that are still accommodative, such as the European Central Bank, will need to remain accommodative longer.
Earlier this month the U.S. dollar index advanced to a 17 month high due to safe haven flows in light of continuing global growth worries and rising political risks in Italy and the U.K. The greenback was able to hold up well in spite of on balance weaker than expected economic reports in the U.S.
However, more recently there has been pressure when Federal Reserve policymakers showed more concern about a potential global slowdown, causing analysts to suspect the Fed’s tightening cycle may not have much further to run. Some analysts are going so far as to say the Federal Reserve may be starting to consider at least a pause next year to its gradual monetary tightening policy.
If I am correct in my belief that the Federal Open Market Committee will increase its fed funds rate no more than two times next year, gains in the U.S. dollar will be limited.
Since the highs were made in late September, the euro currency has stair-stepped lower. There are two main reasons for this. First of all, many of the economic reports in the euro zone have been weaker than anticipated. Underscoring this were comments from the European Union when it said the euro zone economy will cool this year and in the coming years, as global demand for the bloc's exports slow.
Secondly, the euro was pressured by renewed concerns over Italy’s budget deficit. Italy’s Deputy Prime Minister Matteo Salvini said the government would not cave to market pressure and backtrack from its plans to increase deficit spending in 2019. Salvini also said his government could stop European Union budget decisions if the E.U. continues to show disrespect to his countrymen.
It will be difficult for the currency of the euro zone to mount a sustained rally, as political issues remain unresolved and the European Central Bank will not be in a position to increase interest rates until possibly late in 2019, or later.
Since early October, crude oil futures have steadily worked lower, falling to their lowest level in more than a year, as investors have been increasingly concerned about oversupply and the health of the global economy.
There was a limited recent recovery in spite of news that the U.S. Energy Information Administration reported that crude stockpiles increased by 4.9 million barrels in the week ended November 16, compared with analysts' estimates of a 1.9 million barrel increase. Overall, however, there was a total petroleum draw, as stockpiles of oil products such as gasoline and distillates fell. Gasoline inventories declined by 1.3 million barrels and distillate fuel inventories were down by 100,000 barrels. Also, the American Petroleum Institute released figures showing a surprising 1.5 million barrel decrease in crude supplies.
Longer term, crude oil futures are likely to come under additional downside pressure.
The lows were made in mid-August, which coincided with highs for the U.S. dollar. Gold futures have been able to trend higher in spite of tighter credit from the Federal Reserve, including the fed funds rate increase on September 26 and another likely in December.
There are indications that a major bottom may be forming, as bearish sentiment on gold has surged with speculators having become extremely short. In addition, gold futures are likely to be supported by the increasing probabilities of a less hawkish Federal Reserve in 2019.
MARKET OUTLOOK FOR CHINA AND ASIA REGION
By Alex Poon, ADMIS Hong Kong & Kevin Yang, ADMIS Shanghai Representative Office
The following is an overview of the Chinese and Asian economic, political and crop situations as of 21 November, 2018. This report is intended to be informative and does not guarantee price direction.
The key Chinese and Asian event over the last 30 days has been the slowdown of Chinese manufacturing activities despite strong exports data in the midst of a trade war. The recent decline in crude oil prices eased the concerns over the emerging market situation, which is supportive to some Asian currencies such as Indian Rupee and Indonesian Rupiah.
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 author and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analyst does 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.
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This is not a solicitation of any order to buy or sell, but merely a collection of information related to Archer Financial services and commodities trading provided by Archer Financial services. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such element, nor with respect to any expression of opinion herein contained.
The risk of loss in trading futures and options on futures can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them. Past performance is not necessarily indicative of future results.