Mar E-mini S&Ps this morning are up +0.16% at a new record nearest-futures high on optimism in the U.S. economy. Also, lower market volatility is positive for equity prices as the VIX volatility index dropped to a 1-1/2 week low. In addition, a +0.51% increase in Feb WTI crude oil prices has given energy stocks a boost. Crude oil rallied on expectations EIA data tomorrow will show U.S. crude inventories fell -5.0 million bbl, the seventh weekly decline. European stocks are up +0.19% on signs of strength in Germany, Europe's largest economy, after German unemployment fell more than expected last month and the unemployment rate dropped to a record low of 5.5%. Asian stocks settled mostly higher: Japan closed for holiday, Hong Kong +0.15%, China +0.62%, Taiwan +0.85%, Australia +0.15%, Singapore +0.99%, South Korea +0.35%, India -0.06%. Strength in technology stocks lifted most Asian markets with China's Shanghai Composite climbing to a 1-1/4 month high.
The dollar index is up +0.25%. EUR/USD is down -0.32%. USD/JPY is down -0.06%.
Mar 10-year T-note prices are up +2.5 ticks.
ECB Governing Council member Nowotny said the end of the ECB asset-purchase program is "within sight."
The German Dec unemployment change fell -29,000, stronger than expectations of -13,000. The Dec unemployment rate was unch at 5.5%, as expected and the lowest since German reunification in 1991.
The UK Dec Markit/CIPS construction PMI fell -0.9 to 52.2, weaker than expectations of -0.1 to 53.0.
Key news today includes: (1) weekly MBA mortgage applications, (2) Dec ISM manufacturing index (expected unch at 58.2, Nov -0.5 to 58.2), (3) Nov construction spending (expected +0.5%, Oct +1.4% m/m), (4) minutes of the Dec 12-13 FOMC meeting, (5) Dec total vehicle sales (expected 17.50 million, Nov 17.40 million).
Mar S&P 500 E-mini stock futures this morning are up +4.25 points (+0.16%) at a new record nearest-futures high. Tuesday's closes: S&P 500 +0.83%, Dow Jones +0.42%, Nasdaq +1.80%. The S&P 500 on Tuesday rallied to a new record high and closed higher on positive carry-over from a rally in China's Shanghai Composite to a 1-1/4 month high on signs on strength in the Chinese economy after the China Dec Caixin manufacturing PMI unexpectedly rose +0.7 to a 4-month high of 51.5, stronger than expectations of -0.1 to 50.7. U.S. stocks were also supported by the +0.1 point upward revision in the U.S. Dec Markit manufacturing PMI to a 2-3/4 year high of 55.1, stronger than expectations of unchanged at 55.0.
Grain prices this morning are higher with Mar corn +1.25 (+0.35%), Mar soybeans +1.50 (+0.16%), Mar wheat +2.25 (+0.52%). Grains on Tuesday settled mixed with Mar wheat at a 4-week high: Mar corn +2.50 (+0.71%), Mar soybeans +3.00 (+0.31%), Mar wheat +6.50 (+1.52%). Bullish factors included (1) the slide in the dollar index to a 3-1/4 month low, and (2) concern that the ongoing sub-zero temperatures in the central U.S. will damage the winter wheat crop. A bearish factor for soybeans was the USDA weekly export inspections that showed 1.139 MMT of U.S> soybeans were inspected for export the week of Dec 28, down -11% from the prior week. A negative for wheat is increased wheat exports from Russia, the world's biggest wheat exporter, that may further erode demand for U.S. wheat as Russia wheat exports from Jul 1-Dec 20 are up +34% y/y at 19.9 MMT. A supportive factor for corn is increased domestic demand after U.S. ethanol production the week of Dec 1 rose +3.9% to a record 1.108 mln bpd. Strong Chinese soybean demand for U.S soybeans is a bullish factor for soybean prices as China Jan-Nov China soybean imports of U.S. soybeans are up +2.3% y/y to 26.666 MMT.
Livestock prices on Tuesday settled mixed: Feb live cattle +1.800 (+1.48%), Feb lean hogs -1.050 (-1.46%). Feb cattle prices on Tuesday rose to a 1-month high as the excessive sub-zero cold snap in the Great Plains threatens the health of U.S. cattle herds. Other bullish factors included (1) signs of stronger domestic beef demand after wholesale beef prices rose to a 3-week high, and (2) speculation packer demand or cattle will increase after beef packer profit margins rose o aa 2-week high. Cattle prices were already on the upswing after the Dec 22 USDA Cold Storage report that showed beef in cold storage in Nov fell -4.0% m/m and -8.3% y/y to 486.954 mln lbs. Feb cattle on Nov 6 rose to a contract high on strong foreign demand for U.S. beef with U.S. Jan-Oct beef exports up +14.3% y/y to 2.34 bln lbs. The USDA projects U.S. 2017/18 beef production to climb +4.9% y/y to a record 27.657 bln lbs and projects U.S. 2017/18 beef exports will climb to a record 2.985 bln lbs.
The Dec 22 USDA Cattle on Feed report was negative as it showed cattle on feed as of Dec 1 rose +8.1% y/y to a 5-year high of 11.516 million head, above expectations of +6.4% y/y, and cattle placements in feedlots during Nov rose +13.9% y/y to 2.099 million head, higher than expectations of a +6.1% y/y.
Feb lean hog prices on Tuesday closed lower on concern increased hog weights will boost pork supplies after USDA slaughter data showed the average hog carcass weight on Friday rose to a 3-week high of 217.16 lbs. Feb hogs on Friday posted a 4-1/2 month nearest-futures high on bullish factors that included (1) after wholesale pork prices rose to a 3-week high, and (2) strength in the cash market after cash hogs rose to a 3-week high. The Dec 22 USDA Cold Storage report was supportive as it showed overall pork supplies in Nov fell -15.6% m/m and -2.7% y/y to 504.975 mln lbs. On the positive side, foreign demand for U.S. pork is strong with U.S. Jan-Oct pork exports up +8.2% y/y at 4.582 bln lbs and the USDA projects that U.S. pork exports will climb +5.6% y/y to a record 5.9 billion lbs.
The Dec 22 USDA Q4 Hogs & Pigs report was bearish as it showed the U.S. pig herd as of Dec 1 rose +2.4% y/y to 73.23 mln, more than expectations for a +2.3% y/y increase. Also, sows retained for breeding as of Dec 1 rose +1.1% y/y to 6.179 mln, more than expectations for a +0.9% increase, and hogs marketed for slaughter rose +2.5 y/y to 67.051 million, more than expectations of +2.2% y/y and a record high for a Dec 1 (data from 1964). In addition, there was a record 10.74 piglets per litter in Q4.
Softs this morning are mixed with Mar sugar +0.02 (+0.13%), Mar coffee -0.90 (-0.69%), Mar cocoa -16 (-0.83%), Mar cotton +0.18 (+0.23%). Softs on Tuesday settled mixed: Mar sugar +0.17 (+1.12%), Mar coffee +4.00 (+3.17%), Mar cocoa +44 (+2.33%), Mar cotton -1.13 (-1.44%). Mar sugar on Tuesday climbed to a 1-month high as a slump in the dollar index to a 3-1/4 month low fueled gains in most commodities. Another positive for sugar was the action by Petrobras Thursday to raise gasoline prices in Brazil by 1.7%, which benefits ethanol prices and may prompt Brazil's sugar mills to divert more sugar supplies toward ethanol production. Current sugar supplies are adequate after Unica reported that sugar production in the crop year through mid-Dec in Brazil's Center-South region was up +1.45% y/y at 35.586 MMT, and that the percent of sugar use for ethanol production fell to 53.01% from 53.31% last year, which adds to sugar supplies. Mar sugar on Nov 24 rallied to a 7-1/2 month nearest-futures high on carry-over support from a rally in crude oil to a 2-1/3 year high, which benefits ethanol prices and may prompt Brazil's sugar mills to divert more sugar supplies toward ethanol production. ISO projects a global 2017/18 sugar surplus of +5.03 MMT following the global 2016/17 deficit of -6.465 MMT. India projects that its 2017/18 sugar crop will increase by +23% y/y to 25 MMT, the first gain in 3 years. The USDA's Foreign Agricultural Service (FAS) on Nov 17 raised its 2017/18 global sugar surplus estimate to 10.73 MMT from a May forecast of 8.07 MMT and raised its global 2017/18 sugar production estimate to 184.95 MMT from a May view of 179.64 MMT.
Mar coffee prices on Tuesday rose to a 4-week high after a rally in the Brazilian real to a 3-week high against the dollar reduced incentive for Brazil's coffee producers to boost exports with the stronger real. Supplies remain ample as ICE-monitored coffee inventories rose to a 2-year high Friday of 1.974 mln bags. Also, Conab, Brazil's forecasting agency, recently boosted its Brazil 2017 coffee production estimate to 44.97 mln bags from a previous estimate of 44.80 mln bags. Abundant global supplies had fueled fund selling and pushed Mar coffee prices down to a contract low on Dec 12. ICO data shows global arabica coffee exports in the year through Oct up by +5.4% y/y to 76.23 mln bags. Also, the ICO recently revised up its global 2016/17 coffee ending stocks estimate to a surplus of 2.38 mln bags, the first surplus in 3 years, as it raised its global 2016/17 coffee production estimate to a record 157.44 mln bags. The Green Coffee Association reported that U.S. Nov coffee inventories rose +8.7% y/y to 6.737 mln bags. Brazil's 2016/17 coffee output according to Confab may fall -12.5% to 44.97 mln bags from 51.4 mln bags in 2016 since crops are in their lower-yielding half of their 2-year cycle. The USDA on Dec 15 projected that global 2017/18 coffee ending stocks will fall -8.6% to a 5-year low of 29.3 mln bags.
Mar cocoa prices on Tuesday rallied to a 3-week high as a weaker dollar spurred fund short-covering on cocoa futures. The long-term trend for cocoa prices remains negative as Mar cocoa on Dec 22 posted a contract low as signs of abundant supplies spurred fund selling of cocoa futures. The Ivory Coast on Dec 21 boosted its 2017/18 main cocoa crop forecast to 1.40 MMT to 1.45 MMT from a prior forecast of 1.35 MMT. Also, Ivory Coast farmers have delivered 834,000 MT of cocoa beans to Ivory Coast ports from Oct 1-Dec 31, up 7.4% y/y. In addition, the ICCO recently hiked its 2016/17 global cocoa production estimate to a record 4.73 MMT from a prior estimate of 4.70 MMT, which will result in a 6-year-high global 2016/17 surplus of +335,000 MT. Mar cocoa rallied to a 9-month high Nov 10 signs of stronger global chocolate demand after Barry Callebaut reported a +9.2% increase in volume in the three months through Aug. Current cocoa output appears robust after Ghana, the world's second-largest cocoa producer, said its 2016/17 cocoa production rose +25% y/y to 969,438 MT, a 6-year high. Cocoa demand is generally strong with Q3 Asia cocoa grindings up +13% y/y to 167,737 MT, European Q3 cocoa grindings up +3% y/y to 353,544 MT, and Q3 North American cocoa grindings up +0.7% y/y to 125,263 MT. The Ivory Coast, the world's biggest cocoa producer, reported cocoa purchases, a sign of production, rose to 2.015 MMT from Oct-Sep 24, up +29% y/y and a record high.
Mar cotton on Tuesday closed lower on long liquidation after the Cotton Advisory Board predicted 2017/18 cotton production in India, the world's biggest cotton producer, will climb +9.3% y/y to a 3-year high of 37.7 mln bales. Mar cotton last Thursday climbed to a 7-1/4 month nearest-futures high on fund buying due to increased foreign demand for U.S. cotton. China's Nov cotton imports rose +31.5% y/y to 72.2 MMT and its Jan-Nov cotton imports are up +40.0% y/y to 1.055 MMT. Also, Cotlook cut its global 2017/18 cotton surplus estimate to 258,000 MT from a Nov estimate of 789,000 MT. The Pakistan Textile Mills Association on Dec 6 said Pakistan may need to import 2.5 mln bales of cotton in 2018. Recent foods in Pakistan, the world's fourth-largest cotton producer, may reduce its cotton crop and prompt it to import as much as 1 mln bales this year, according to researcher Rose Commodity Group. In addition, the USDA in the Dec 12 WASDE report unexpectedly raised its U.S. 2017/18 cotton export estimate to 14.8 mln bales from 14.5 mln bales. The USDA projects global 2017/18 cotton use will climb to 119.59 mln bales, the most since 2009.
Feb crude oil this morning is up +31 cents (+0.51%) and Feb gasoline is +0.0112 (+0.64%). Tuesday's closes: Feb WTI crude -0.05 (-0.08%), Feb gasoline -0.0327 (-1.82%). Feb crude oil and gasoline on Tuesday closed lower on increased Russian crude oil output after Russia 2017 crude production rose +0.1% to 10.98 million bpd, the highest since the collapse of the Soviet Union in 1991. Crude oil prices were also supported by the decline in the crack spread to a 1-week low, which reduces incentive for refiners to boost crude oil purchases to refine the crude into gasoline. Crude oil prices were supported by the drop in the dollar index to a 3-1/4 month low.
Metals prices this morning are mixed with Feb gold +1.0 (+0.08%), Mar silver -0.051 (-0.30%) and Mar copper -0.025 (-0.75%). Tuesday's closes: Feb gold +6.8 (+0.52%), Mar silver +0.061 (+0.36%), Mar copper 0.0225 (-0.68%). Metals on Tuesday settled mixed with Feb gold at a 3-1/2 month high and Mar silver at a 1-month high. Metals prices were boosted by the slump in the dollar index to a 3-1/4 month low and by increased inflation expectations that boost demand for precious metals as an inflation hedge after the 10-year T-note breakeven inflation rate rose to a 9-1/2 month high. Copper closed lower on long liquidation by funds after copper prices rose for 10 straight session to a 3-3/4 year high on Dec 28.
Mar 10-year T-note prices this morning are up +2.5 ticks. Tuesday's closes: TYH8 -11.50, FVH8 -6.00. Mar 10-year T-notes on Tuesday closed lower on negative carry-over from the jump in the 10-year bund yield to a 2-1/4 month high and on increased inflation expectations after the 10-year T-note breakeven inflation rate rose to a 9-1/2 month high.
The dollar index this morning is up +0.23 (+0.25%). EUR/USD is down -0.0039 (-0.32%) and USD/JPY is down -0.07 (-0.06%). Tuesday's closes: Dollar Index -0.364 (-0.39%), EUR/USD +0.0047 (+0.39%), USD/JPY -0.34 (-0.30%). The dollar index on Tuesday fell to a 3-1/4 month low and closed lower on strength in EUR/USD which rose to a 3-3/4 month high on hawkish comments from ECB Executive Board member Coeure who said the ECB's current extension of stimulus may be the last. EUR/USD was also supported by the jump in the 10-year bund yield to a 2-1/4 month high, which boosts the interest rate differentials of the euro versus the dollar.
Global Calendar – Wednesday 1/3/18
|0700 ET||Weekly MBA mortgage applications.|
|1000 ET||Dec ISM manufacturing index expected unch at 58.2, Nov -0.5 to 58.2. Dec ISM new orders, Nov +0.6 to 64.0. Dec ISM employment, Nov expected -0.1 to 59.7. Dec ISM prices paid expected -1.0 to 64.5, Nov -3.0 to 65.5.|
|1000 ET||Nov construction spending expected +0.5%, Oct +1.4% m/m.|
|1400 ET||Minutes of the Dec 12-13 FOMC meeting.|
|n/a||Dec total vehicle sales expected 17.50 million, Nov 17.40 million. Dec domestic vehicle sales expected 13.30 million, Nov 13.46 million.|