Macro Markets | The US Employment Cost Index increased 0.8% in the 3rd quarter, the Labor Department said today. For the year the index is now up 2.8%. Wages and salaries are up 2.9% in the last 12 months through September. That is the biggest gain in 10 years!
The labor market is getting tighter and companies need to pay more for workers. These are strong numbers for the labor market and it will be another reason why the Fed will see no problems continuing to increase interest rates. In theory this should continue to be positive for the dollar.
DEC US DOLLAR INDEX DAILY CHART
Emini S&P 500 and Gold | The stock market is stabilizing and rallying while gold is reversing lower. The stock market is going through a healthy correction. We also have the US midterm elections on Tuesday and the Democrats are very likely to take back the US House of Representatives and the battle for the Senate is going to be close. This creates uncertainty in policy and the market never likes uncertainty (regardless of which party gains power or loses power). After the election, regardless of who wins, I think the markets move on and any election selling pressure goes away.
An improved stock market, higher interest rates, and the stronger dollar are not good for gold prices. On top of that the gold market never rallied hard up to $1300 during 10% correction. If gold was going to really spike higher it should have over the past week or two. This tell us gold is most likely to test $1200 and probably the recent lows around $1185.
Continuous Emini S&P Daily Chart
Continuous Gold Daily Chart
GRAINS & OILSEEDS | We expect corn to be range bound for the rest of 2018, which sets up nicely for producers who what to sell straddles or covered calls on corn in storage. The US has a 1.8 billion carryout which is neither tight nor burdensome. Demand is strong but we do have export competition from the Ukraine. For every bullish item I can think of a bearish point for corn. I think corn can trade in the $3.50s to the $3.80s. We will go up and down based on the dollar, exports, South American weather, USDA yield estimates, and money flow. I think the most bullish case for corn is China’s corn supply is 85 days, the world supply is 52 days, and if you exclude China and the US the global supply is 38 days.
Wheat is testing the recent lows again as the dollar rallies and Russia continues to make export sales. The USDA estimates Russia has exported 60% of available wheat and we still have 7 months left in the marketing year. I think wheat finds support at these levels but the US must get active on the export market in the next few weeks.
Today is First Notice Day for Soybeans and any deliveries against November will start today. Producers with basis contracts will have made decision to price their grain or roll and store. Based on the price action I think the pressure was to price and sell. Anyone still long Nov beans needed to get out yesterday and are subject to delivery today. I’m sure a lot of the last traders long bean probably have to exit today. Nothing between the US and China is going to happen until after the midterms. The US and China will talk in November. Lets hope they can make some progress in their trade talks. If there is no progress the US needs to plant 5 to 6 million less acres of soybeans next year to get prices back above $9 consistently.
Dec Corn Daily Chart
Dec Wheat Daily Chart
Nov Soybeans Daily Chart
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