Jun E-mini S&Ps this morning are up +0.18% on optimism progress was being made in trade talks between the U.S. and China on reports that China had offered to reduce its annual trade surplus with the U.S. by $200 billion through increased imports of American products, according to an anonymous Trump administration official. The U.S. merchandise trade deficit with China hit a record $375 billion last year. European stocks fell back from a 3-1/2 month high and are down -0.19% on Italian political risks. Italy's MIB Stock Index is down -1.17% and the 10-year Italy bond yield jumped 11 bp to a 10-month high of 2.22% after the Five Star Movement and the League reached an accord that aims to ramp up spending on the poor and cut taxes in a direct challenge to the European Union. The accord demands a review of EU budget rules, an end to economic sanctions on Russia and pledges to roll-back pension reforms that raised the retirement age. Asian stocks settled mostly higher: Japan +0.40%, Hong Kong+0.34%, China +1.24%, Taiwan -0.03%, Australia -011%, Singapore -0.21%, South Korea +0.34%, India -0.86%. China's Shanghai Composite climbed to a 5-week high on strength in energy stocks along with optimism that progress will be made on U.S.-China trade talks. Japan's Nikkei Stock Index rallied to a 3-1/2 month high, led by a jump in exporters, as USD/JPY rose to a 3-3/4 month high.
The dollar index is up +0.17% at a 5-month high. EUR/USD is down -0.12%. USD/JPY is up +0.22% at a 3-3/4 month high after Japan Apr national CPI rose +0.6% y/y, weaker than expectations of +0.7% y/y and the slowest pace of increase in 5 months, which is dovish for BOJ monetary policy and undercut the yen.
Jun 10-year T-note prices are little changed, up +0.5 of a tick.
Cleveland Fed President Mester said "the U.S. economy is near both Fed monetary goals of maximum employment and price stability, and the outlook is one of the most favorable we have seen in a long time."
ECB Governing Council member Nowotny said he's among policymakers who think the ECB "shouldn't wait too long with normalizing monetary policy, given the situation of the economy."
German Apr PPI rose +0.5% m/m and +2.0% y/y, stronger than expectations of +0.3% m/m and +1.8% y/y.
Japan Apr national CPI rose +0.6% y/y, weaker than expectations of +0.7% y/y and the slowest pace of increase in 5 months. Apr national CPI ex fresh food rose +0.7% y/y, weaker than expectations of +0.8% y/y and the smallest pace of increase in 7 months. Apr national CPI ex fresh food & energy rose +0.4% y/y, right on expectations.
Key news today includes: (1) Cleveland Fed President Loretta Mester (voter) speaks on ‘Macroprudential and Monetary Policy’ at an ECB conference in Frankfurt, (2) Dallas Fed President Robert Kaplan (non-voter) speaks in a moderated Q&A at an event at a University of Texas at Dallas event.
June S&P 500 E-minis this morning are up +5.00 points (+0.18%). Thursday's closes: S&P 500 -0.09%, Dow Jones -0.22%, Nasdaq -0.41%. The S&P 500 on Thursday closed lower on the increase in the 10-year T-note yield to a new 6-3/4 year high of 3.12% and on the +11,000 increase in U.S. weekly jobless claims, more than expectations of +4,000. Stocks were supported by the unexpected +11.2 point increase in the U.S. May Philadelphia Fed business outlook survey to a 1-year high of 34.4, stronger than expectations of -2.2 to 21.0. There was also strength in energy stocks as crude oil prices rose 0.14% to a new 3-1/2 year high.
Grain prices this morning are higher with Jul corn +5.25 (+1.33%, Jul soybeans +10.50 (+1.06%), and Jul wheat +8.25 (+1.66%). Grain prices on Thursday settled mixed with Jul soybeans at a 6-week low: Jul corn -4.00 (-1.00%), Jul soybeans -4.75 (-0.48%), Jul wheat +3.25 (+0.66%). Bearish factors included (1) a stronger dollar, (2) ideal weather in the central U.S. that benefits the development of the newly planted crops, and (3) trade tensions between Russia and China that is undercutting Chinese demand for U.S. soybeans in favor of other sellers after Chinese customs data showed Chinese purchases of Russian soybean from July through mid-May was 850,000 MT, more than double the 340,000 MT from the prior year. China's National Grain and Oils Information Center last week to project China 2018 soybean imports may decline by -1 MMT to 95 MMT, the first decline in 15 years. Wheat rallied on global crop concerns with below-normal moisture levels in the wheat growing areas of the U.S., Canada and Australia.
Monday's USDA Crop Progress report showed 62% of the U.S. corn crop planted as of May 13, just behind the 5-year avg of 63%, and that 15% of the U.S. soybean crop was planted as of May 6, 2 pts behind the 5-year avg of 13%. The USDA reported 35% of the U.S. soybean crop planted as of May 13, ahead of the 5-year avg of 26%. Also, 36% of the U.S winter wheat was in good/excellent condition as of May 13, up +2 pts w/w but down from 51% last year. The NWS reported that the wheat-growing region from Texas to southwest Kansas had the driest Dec-Feb on record.
Livestock prices on Thursday closed higher: Jun cattle +1.225 (+1.20%), Jun hogs +0.575 (+0.76%). June cattle on Thursday posted a 1-month low but recovered its losses and closed higher on bullish factors that included (1) signs of strength in domestic beef demand after wholesale beef prices rose to a 10-1/2 month high and (2) improved packer profit margins that rose to an 10-1/4 month high, which may boost packer demand for cattle. Jun cattle had posted that 1-month low on cash market weakness that undercuts futures prices lower after cash cattle fell to a 5-week low. The USDA in the May 10 WASDE report projected U.S. 2018/19 beef production will climb +1.8% y/y to a record 27.778 bln lbs. USDA slaughter data shows 11.528 mln head of cattle processed this year through May 12, up +2.5% y/y. Jun cattle on Apr 1 fell to a 1-year low on news of China's implementation of a 25% tariff on U.S. pork exports to China and by news that beef is on the list of products subject to China's proposed 25% tariff on $50 billion of U.S. products. Foreign demand for U.S. beef is robust with U.S. Jan-Mar beef exports up +12.2% y/y at 730.145 mln lbs and with the USDA projecting that U.S. 2018/19 beef exports will climb +3.5% y/y to a record 3.150 bln lbs.
The Apr 20 USDA Cattle on Feed report was mixed as it showed cattle on feed as of Apr 1 rose +7.4% y/y to 11.729 million head, below expectations of +7.7 y/y, but still the highest for an April in 12-years. Cattle placements in feedlots during Mar fell -9.3% y/y to 1.921 million head, lower than expectations of a -8.7% y/y. Also, cattle marketed for slaughter in Mar fell -3.9% y/y to 1.84 mln head, above expectations of -4.2% y/y. The Apr 23 USDA Cold Storage report was mixed as it showed beef in cold storage in Mar rose +1% m/m and was unch y/y to 463.871 mln lbs.
June hog prices on Thursday closed higher on cash market strength as cash hog prices jumped to a 3-month high Wednesday. Also, wholesale pork prices climbed to a 2-month high, a sign of stronger domestic pork demand. Domestic pork demand had been stagnant after wholesale pork prices plunged to a 3-year low Apr 11. On the negative side is the slide in pork packer profit margins to a 3-month low, which may cub packer demand for hogs. The USDA in the May 10 WASE report projected that U.S. 2018/19 pork production will climb +3.1% y/y to a record 27.624 bln lbs. Also, USDA slaughter data shows 45.011 mln hogs processed this year through May 12, up +2.8% y/y. Jun hogs slumped to a contract low Apr 4 and nearest-futures (J18) fell to a 1-1/2 year low after China said that it may levy a 25% tariff on U.S. pork exports starting immediately, which is likely to nearly shut down U.S. pork exports to China and cause backed-up pork supplies in the U.S. The Apr 23 USDA Cold Storage report was negative as well as it showed overall pork supplies in Mar rose +0.2% m/m and rose +12.0% y/y to 611.048 mln lbs. Foreign demand for U.S. pork is firm with U.S. Jan-Mar pork exports up +5.8% y/y at 1.516 bln lbs and the USDA projects that U.S. 2018/19 pork exports will climb +3.5% y/y to a record 6.125 bln lbs.
The USDA Q1 Hogs & Pigs report (released March 29) was bearish as it showed that the U.S. pig herd as of Mar 1 rose +3.1% y/y to 72.908 mln, which was a record high for a March 1st (data from 1964). Also, sows retained for breeding as of Mar 1 rose +1.7% y/y to 6.2 mln, more than expectations of +1.4%, and hogs marketed for slaughter rose +3.3 y/y to 66.708 million, more than expectations of +2.2% y/y and a record high for a March 1st (data from 1964). In addition, piglets per litter in Q1 rose +1.4% y/y to 10.58, higher than expectations of +1.0% y/y and a record high for a March 1st (data from 1964).
Softs this morning are higher with Jul sugar +0.05 (+0.43%), Jul coffee +0.35 (+0.30%), Jul cocoa +13 (+0.49%), and Jul cotton +0.77 (+0.91%). Softs on Thursday settled mixed: Jul sugar -0.05 (-0.43%), Jul coffee +0.60 (+0.51%), Jul cocoa -91 (-3.33%), Jul cotton +0.68 (+0.81%). Jul sugar on Thursday climbed to a 1-1/2 week high but fell back and closed lower on weakness in the Brazilian real, which slumped to a 2-year low against the dollar and may encourage Brazil's sugar producers to boost more-profitable exports with the weaker real. Jul sugar had posted that 1-1/2 week high on positive carry-over from the rally in crude prices to a 3-1/2 year high, which may prompt Brazil's sugar producers to divert more sugar toward ethanol production and reduce sugar supplies. Jul sugar last Friday fell to a 2-week low on signs of robust global sugar supplies. The Thailand Office of Cane and Sugar Board reported Thailand 2017/18 sugar production rose to a record 14.47 MMT, while the ISO raised its global 2017/18 sugar surplus estimate to +11.1 MMT from a Mar estimate of +5.15 MMT and projected a global 2018/19 sugar surplus in excess of 4 MMT. Jul sugar has moved lower over the past 2-months to a contract low and 2-1/2 year nearest-futures (K18) low Apr 25 as signs of abundant supplies fueled fund selling. Researcher Green Pool raised its global 2017/18 sugar surplus to an all-time high of 18.4 MMT and forecast a global 2018/19 sugar surplus of 6.6 MMT. Unica reported Brazil's Center-South sugar output in the second half of Apr jumped 34.8% y/y to 1.527 MMT. Also, India's SMA boosted its estimate for India's 2017/18 sugar production to a record 31.5 MMT from a Mar forecast of 29.5 MMT. The USDA's Foreign Agricultural Service (FAS) projects a record 2017/18 global sugar surplus of 10.73 MMT and record global 2017/18 sugar production of 184.95 MMT. On the positive side, Conab projects Brazil 2018/19 sugar production will fall -6.3% y/y to 35.5 MMT, a 3-year low.
Jul coffee on Wednesday closed higher as prices consolidated recent losses. Jul coffee on Tuesday dropped to a 3-week low after the Brazilian real slumped to a 2-year low against the dollar, which gives coffee producers incentive to boost more-profitable exports with the weak real. Coffee prices have sold-off over the past week on robust supplies. Researcher Olam forecasts a global 2018/19 arabica coffee bean surplus of +6.1 mln bags following a -4.1 mln bag deficit in 2017/18. Also, Columbia, the world's second-largest arabica producer, reported its Apr coffee exports rose +3% y/y to 920,922 bags, and ICE-monitored coffee inventories rose to a 3-1/2 month high Monday of 1.999 mln bags and are just below Jan's 2-1/4 year high of 2.017 mln bags. The downside may be limited on Brazil crop concerns after Somar Meteorologia said Monday that rainfall in Minas Gerais, Brazil's biggest arabica coffee producing region, measured only 12% of its historical average over the past week. Coffee prices had fallen to a contract low and 10-1/2 month nearest-futures low (K18) on Apr 17 as the outlook for abundant coffee supplies fueled fund selling of coffee futures. Conab projects Brazil 2018 coffee production of 58 mln bags, up +29% y/y, as crops are in the higher-yielding half of their biennial cycle. Also, Vietnam said it expects its 2018 coffee exports to rise +9% y/y to 1.55 MMT. ICO projects global 2017/18 coffee production will climb +0.8% y/y to a record 158.93 mln bags. On the positive side, the USDA projects that global 2017/18 coffee ending stocks will fall -8.6% to a 5-year low of 29.3 mln bags, and U.S. Apr green coffee inventories fell -2.3% y/y to 6.733 mln bags. ICO reported global coffee exports from Oct-Mar were 59.96 mln bags, down -0.6% y/y.
Jul cocoa prices on Thursday fell to a new 1-month low after weather forecasts called for normal to above-normal rainfall in the Ivory Coast higher over the next week. Supplies have tightened as Ivory Coast farmers delivered 1.601 MMT of cocoa beans to Ivory Coast ports during Oct 1-May 13, down -2.3% y/y. The recent rally in cocoa prices may be crimping global demand after Barry Callebaut, the world's top cocoa processor, reported last Wednesday that global chocolate sales rose +2.0% y/y in the three months through Jan, the slowest pace of increase in a year. Jul cocoa posted a contract and 1-1/2 year nearest-futures (K18) high Apr 26 on signs of stronger global cocoa demand amid tighter supplies. European Q1 cocoa processing rose +5.5% to 358,432 MT, more than expectations of +3.4% and the most for a Q1 in data going back to 2001, and Asian Q1 cocoa processing rose +7.2% y/y to 190,244 MT, stronger than expectations of +6.2% y/y. Cocoa purchases from the Cocoa Bard of Ghana, the world's second-biggest cocoa producer, have fallen -8.3% y/y to 688,092 MT from Oct 13-Apr 26. Cocoa prices have rallied sharply this year on dry weather in the Ivory Coast, which has received less than 75% of normal rainfall over the past month, according to Speedwell Weather. ICCO projects that 2017/18 global cocoa production will fall -2.3% y/y to 4.638 MMT and that the global cocoa surplus will fall to +105,000 MT from 2016/17's 6-year high surplus of 300,000 MT. On the negative side, the National Confectioners Association reported Apr 20 that Q1 North American cocoa processing unexpectedly fell -1.1% y/y to 120.152 MT, weaker than expectations of a +1.5% y/y increase.
Jul cotton on Thursday closed higher after data from the U.S. Drought Monitor showed 42% of Texas was in a severe-to-extreme drought as of May 15, up +2 pts w/w. Jul cotton on Tuesday posted a 2-week low as the pace of U.S. cotton planting picked up after Monday's USDA Crop Progress report showed 36% of the U.S. cotton crop planted as of May 13, ahead of the 5-year avg of 31%. Cotton prices rallied to a contract high last Monday after forecasted rains missed most of the Texas cotton growing areas. World Weather had forecast drier-than-normal conditions into May for West Texas, the biggest U.S. cotton producing state. Other positives include (1) USDA projections for U.S. 2018/19 cotton production of 19.5 mln bales, below expectations of 20.3 mln bales, and (2) USDA projections for global 2018/19 cotton ending stocks at a 7-year low of 83.75 mln bales, below expectations of 85.2 mln bales. On the bearish side, the U.S. Drought Monitor on Thursday reported that 33% of Texas was in a severe-to-extreme drought as of May 8, down from 44% three months earlier. Also, Chinese cotton demand has weakened with China Jan-Mar cotton imports down -8.3% y/y at 343.7 MT. Another negative is increased cotton output in India, the world's second largest cotton producer. India projects its 2017/18 cotton production will climb +9.8% y/y to a 3-year high of 37 mln bales. Cotton demand is a major supportive factor as the USDA projects that global 2018/19 cotton use will climb to a record high of 125.44 mln bales. Cotton prices on Apr 4 plunged to a 2-1/2 month low on the Chinese proposal to slap 25% tariffs on U.S. cotton exports.
Jun WTI crude oil prices this morning are up +3 cents (+0.04%) and Jun gasoline is +0.0109 (+0.49%). Thursday's closes: Jun crude +0.10 (+0.14%), Jun gasoline 0.0068 (-0.30%). Jun crude oil and gasoline on Thursday settled mixed with Jun crude at a 3-1/2 year high. Crude oil prices were supported by the anticipation of a drop in Iranian oil imports this year as renewed U.S. sanctions take effect. Crude oil prices were also boosted by the increase in the crack spread to an 8-1/4 month high, which provides incentive for refiners to boost their crude purchases to refine the crude into gasoline. Crude oil prices were undercut by a stronger dollar.
Metals prices this morning are weaker with Jun gold -3.5 (-0.27%), Jul silver -0.081 (-0.49%), and Jul copper -0.022 (-0.70%). Thursday's closes: Jun gold -2.10 (-0.16%), Jul silver +0.110 (+0.67%), Jul copper +0.0185 (+0.60%). Metals on Thursday settled mixed with Jun gold at a 4-3/4 month low. Metals prices were undercut by a stronger dollar and by the rally in stocks, which reduced the safe-haven demand for precious metals. Copper found support on signs of strength in the U.S. economy after weekly continuing claims fell -87,000 to a 44-1/2 year low of 1.707 million and the May Philadelphia Fed business outlook survey unexpectedly rose +11.2 to a 1-year high of 34.4.
June 10-year T-notes this morning are up +0.50 of a tick. Thursday's closes: TYM8 -1.00, FVM8 +0.75. Jun 10-year T-notes on Thursday fell to a new contract low and the 10-year T-note yield rose to a 6-3/4 year high of 3.12%. T-note prices were undercut by signs of strength in the U.S. economy after weekly continuing claims fell to a 44-1/2 year low and the May Philadelphia Fed business outlook survey climbed to a 1-year high. T-note prices were also undercut by increased inflation expectations after the 10-year T-note breakeven inflation rate rose to a 3-3/4 year high of 2.20%.
The dollar index this morning is up +0.157 (+0.17%) at a 5-month high. EUR/USD is down -0.0014 (-0.12%). USD/JPY is up +0.24 (+0.22%) at a 3-3/4 month high. Thursday's closes: Dollar Index +0.077 (+0.08%), EUR/USD -0.0013 (-0.11%), USD/JPY +0.37 (+0.34%). The dollar index on Thursday closed higher on stronger-than-expected U.S. May Philadelphia Fed business outlook index that rose to a 1-year high and was hawkish for Fed policy. The dollar was also boosted by the rise in the 10-year T-note yield to a new 6-3/4 year high of 3.12%, which improved the dollar's interest rate differentials.