Today's stronger than expected Q2 GDP number ( 4% compared to expectations of 3%) has ramped up selling in the longer dated section of the curve. The long bond is down over a full point as I type these comments. The Dollar is also benefitting, particularly against the Yen today, as forex traders are buying it and selling the rest of the majors. Talk has now shifted ( at least for today) firmly in favor of higher interest rates coming to the US before any of the other industrialized nations.
Take a look at the daily chart of the US Dollar ( USDX). Note that the greenback has run right into the zone of heavy chart resistance pictured on the chart. That resistance zone is a function of a downside gap made all the way back in September of last year. The gap has served to cap the Dollar's upward movement for nearly a year. Seeing it challenged today is therefore something that should not be ignored. If the Dollar can punch through this level on a closing basis today, and then repeat it tomorrow, we should see some additional buying come in.
The ADX is showing a decidedly bullish chart picture with the bulls firmly in control of the market. The indicator itself is above 30 and rising - evidence of a strong bullish trend. If that resistance zone does give way as noted above, this thing could turn into something stronger on the intermediate term charts. Above 81.60 there is resistance at 82 and again near 82.50.
Here is the chart of the long bond. It seems to have reached its zenith near the 139 level. Today's GDP number was simply too much for the market to extend any higher. We have a ceiling now at this level for the time being meaning it will take some sort of safe haven event to kick the ceiling down or some very bad economic news from somewhere. The indicator is turning down and getting ready to confirm the negative divergence that was created recently. We'll have to see whether the bonds are setting up a range trade or whether this is the start of a longer lasting downtrend. It is far too early to assert the latter with any dogmatism.
Copper is benefitting from the stronger GDP number.
Hog prices continue to reel from traders reassessing the overall impact from the dreaded PED virus. Record heavy weights are offsetting most, if not all, of the impact of the disease on the slaughter numbers. I mentioned repeatedly over the last few weeks for hog producers to get some hedge protection on expected Q4 and Q1 2015 production while record prices were being seen. I hope some of you hog producers out there took that to heart. I have similar concerns about the cattle at this point. Cattle producers are basking in record profits right now but these things do not last forever. Do not be penny wise and pound foolish. Get some hedges in place on expected future production while you can. Do not wait until you HAVE TO get the protection. Speculators - I am speaking to producers right now.
Bean prices are giving up the gains from their recent rally that was due to heat and dryness talk. Bulls talk that up every season so that is not new. The forecasts however are showing some rain entering the mid-West next week and with no searing hot temperatures anywhere in there, growing conditions remain very good for the majority of the crop. Yes, there are some areas where the crop deteriorated slightly ( I noted that on my Monday take on the USDA Crop Conditions ratings) but those small pockets cannot detract from the fact that the majority of the crop is still in very good shape.
Look at what continues to happen in the overall commodity sector...
It is showing a loss on the year at this point. Simply put, those investing in commodities as an asset class this year, particularly those looking for inflationary pressures to show up, have been on the wrong side of the complex. Now of course that could change but the fact is that while overall economic growth globally has been okay, it has not been strong enough to power the sector higher. Demand is not there as it once was. We'll have to see if growth can pick up from current levels.
A stronger Dollar threatening to move into a sharper uptrend and falling commodity prices do not augur well for higher gold prices. As stated here yesterday, it is geopolitical events that are keeping gold above the $1280 level right now.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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