Perspective: Midday Commentary, 02/12/2016

Friday, February 12, 2016


February 12 – The stock market is strong this morning, with the DOW taking out Thursday’s high. It’s doing so despite modestly bearish economic news out mid-morning. Business inventories showed an unhealthy build relative to sales, which dropped a sharp 0.6% in December. Furthermore, consumer sentiment took an unexpected drop. Yet, Wall Street continues to focus on easing fears regarding the banking sector and on this morning’s positive retail sales data for January.


West Texas Intermediate crude oil is up $3 per barrel at this point, up more than 11% on the day. Speculative short-covering and producer hedge lifting are said to be behind the strength, which leaves a supportive double-bottom on the charts. Time will tell if this is the long-anticipated bottom in the market. Yet, traders are anxious to reposition ahead of the three-day holiday weekend, providing sharp gains today. That in turn provides active buying interest for the broader commodity indices, with the Thomson Reuters CRB index posting a supportive double-bottom on the charts as well.


Strength in the other markets has provided firm under-pinning for the Ags to this point, but grain and oilseed prices have not shared in the enthusiasm. Fund managers had already previously unwound much of their previously large short positions and export demand remains disappointing with the dollar stronger today as well. As a result, the grain sector is chopping sideways in a relatively narrow trading range while marking time until more fundamental direction is provided in the weeks ahead.


Cash cattle trade Thursday in the Plains feedlot region was mostly $2 to $3 lower from the previous week, but that was largely priced into futures earlier this week when they were dragged lower by the collapse in the equities. A rebound in the stock market today provides support for a modest bounce in cattle futures, although that strength is quickly disappearing and the charts still look weak. We’re still a couple weeks away from the point when retailers typically start building coverage of the higher cuts ahead of grilling season, leaving product prices vulnerable. Lean hog futures rebounded back into this month’s predominant trading range on solid cash fundamentals, with product prices generally firm this morning as well.

 

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