Environment Not Friendly For Commodities

November 21, 2013 12:20 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are 1 to 2 cents higher, soybeans are 5 to 7 cents higher and wheat futures are fractionally to 2 cents higher. To sustain the overnight gains into the daytime session, weekly export sales must be as expected or stronger. Cattle futures are expected to mildly favor a weaker tone, while hogs are seen opening mixed.


* Environment not positive for commodities. There currently aren't any inflationary concerns. In fact, deflation seems to be the greater concern at the moment. That's not bullish for commodities and is a major reason why speculative money is not flowing into the long side of commodity markets. Until the macro-economic environment improves, it's highly unlikely there will be a strong, sustained rally in commodities. That's not to say individual commodities can't show strength, but there's not likely to be a sector-wide rally.

The long and short of it: Without incentive for funds to actively pump money into commodities, it will be that much harder for grain markets to put in lows and spark more than modest corrective buying unless there's a bullish fundamental development.

* FOMC minutes provide no clarity. Minutes from the October Federal Open Market Committee meeting that were released yesterday afternoon showed there are varying opinions within the Fed on when the central bank should start tapering its month asset purchases. They also indicated tapering could begin at one of the upcoming meetings -- if economic conditions warrant. So basically, the minutes provided no clarity on when the tapering will begin. While that was not a surprise to investors or economists, the minutes didn't provide the "answers" they have been clamoring for.

The long and short of it: The FOMC minutes left a lot for interpretation, meaning there are many "reads" on the minutes. While investors are still guessing on when tapering will begin, the pattern suggests it will begin later rather than sooner unless there's a dramatic uptick in economic activity, especially in jobs growth.

* Slower growth for China's manufacturing sector. Preliminary data shows the pace of growth in China's vast manufacturing sector slowed this month. The flash HSBC purchasing managers' index (PMI) slipped to 50.4 for November from a final HSBC reading of 50.9 in October. The official PMI reading from the Chinese government came in at 51.4 in October. The decline in the preliminary HSBC data was largely driven by a decline in new export orders.

The long and short of it: While the slower growth pace is slightly disappointing, the fact China's manufacturing sector continues to expand limits concerns about the country's economic health.


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