Perspective: Morning Commentary, 11/27/2015

Friday, November 27, 2015

November 27 – Stocks tumbled in China overnight as the top three brokerage firms remain under investigation for potential rules violations. The closely watched Shanghai Composite Index dropped 5.5% as the crackdown raised more fear for the market. The China market volatility adds more uncertainty to the global picture for commodities amid thin holiday trading in the United States, although global stock markets were mixed and relatively calm.
The U.S. dollar index is back above 100 this morning, although still below Wednesday’s high at this hour. Bond trade in Europe reflects expectations that the European Central Bank will expand its asset purchasing program when it meets next Thursday, while expectations continue to be high that the U.S. Federal Reserve will go in the opposite direction by raising rates for the first time since 2006.

As such, commodities are facing modest headwinds this morning on fears that a stronger dollar will hurt exports amid sluggish global trade due to an anemic world economy. Gold fell to its lowest level since February 2010. Crude oil is weaker as well this morning, although still holding above very modest support near $42 per barrel.
Today’s U.S. economic calendar is relatively empty in what should be a thinly traded holiday trade environment. It’s a short day of trading today, with many traders and investors choosing to focus on family gatherings and shopping today rather than the markets. That can lead to some erratic volatility if market-moving news hits the trade, but otherwise we could simply see the markets drift today. Early indications were that online sales were good on Thursday, but it’s still early.

The calendar gets busier as we move into next week, with pending home sales out on Monday. That’s followed by vehicle sales, manufacturing and construction spending data on Tuesday, with the week ending with the highly anticipated monthly jobs report out on Friday. Next week’s data should go a long ways toward either confirming or casting doubts regarding the Fed’s decision to raise rates on December 16.

The weather remains relatively benign across major production areas of the world. Black Sea wheat is slipping into dormancy following a warm period with relatively good moisture relief, with snow cover currently across northern Russia wheat areas. The bulk of the Plains and Midwest winter wheat belt either received or should shortly receive good moisture over the next couple days as an early-winter storm continues to slowly drift east across the nation’s midsection. Some previously dry areas of Brazil’s northern corn/soybean belt received good moisture over the past two days, with timely rains expected to continue over the next couple of weeks, limiting dry spots to no more than 10% of the belt. Rains disappointed in Argentina this week, but no significant areas of crop stress are yet seen.

USDA released export sales totals for the week ending November 19 this morning. Beef, pork and wheat sales continue to be hampered by a strong U.S. dollar. Soybean sales slowed again during the week; perhaps on ideas that Argentina might have a 90-day export tax holiday for the oilseed. That rumor was dispelled by the newly-elected president this week, but that was after the current sales reporting period. Corn sales were strong at 80.2 million old- and 20.8 million new-crop bushels. The big buyer was Mexico, which purchased 43.8 million old- and 19.2 million new-crop bushels during the week. Yet, the purchase was still not enough to salvage this year’s export program that continues to battle cheaper alternative supplies from South America.

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