Argentina leads the headlines this morning after weekend elections dramatically altered the political winds of this potential agricultural powerhouse. Already the world’s largest exporter of soymeal, economic changes promised by the new government could elevate it to the world’s second largest corn exporter in the next couple of years, while doubling wheat shipments as well. Mauricio Macri will certainly have his challenges, but his promised shift toward a more market-oriented economy runs contrary to the direction being followed by many other global commodity exporters, which could set Argentina up as a major player on the world market over the next several years. See my analysis posted on Friday for more perspective on the implications of the election.
Meanwhile, global commodity prices came under significant pressure overnight as the markets worry about a sluggish economy in China and much of the rest of the world. Speculative hedge fund managers are worried that China will have to devalue its yuan once again in an effort to jump start its economy. A slumping economy means reduced demand from the world’s largest importer of commodities.
The closely followed Thomson Reuters CRB index slipped to its lowest level since 2002 in the sell-off. Nickel hit a 12-year low, while copper fell to its lowest level since 2009 and zinc plummeted 4.3%. Meanwhile, crude oil bounced overnight after probing below $39 on Friday. Short-covering provided a bounce to $42.75 early today after Saudi Arabia indicated that it was willing to work with both OPEC and non-OPEC nations to bring stability back to the oil market. However, sellers emerged once again on the spike to pressure the market.
The dollar pushed to new seven-month highs overnight, falling just short of testing the April high. Profit taking pulled the market back at that point, but it remains in positive territory at this hour. It’s difficult to be bearish the dollar when other major currencies continue to face significant headwinds. That doesn’t mean that we couldn’t see a period of consolidation, but traders remain reluctant to be short the greenback.
The euro is expected to remain under pressure as the European Central Bank considers expanding its asset-purchasing program on December 3. However, better-than-expected economic news may make that a more difficult decision. Eurozone data on manufacturing and services released early today indicates the best economic activity since May 2011.
The U.S. economic calendar will be busy this week, although shortened by Thursday’s Thanksgiving holiday break. We’ll get data from the manufacturing and housing sectors today, followed by a revision of third quarter GDP growth on Tuesday. Tuesday’s docket includes additional housing, manufacturing and consumer confidence data, followed by more data in all of these areas released on Wednesday.
The Ag sector was not immune to the commodity sell-off overnight, with soybeans falling to their lowest level since hitting a low of $8.43 in March 2009. The next low beyond that would be the dip to $7.7625 in December 2008. Corn and wheat remain above recent lows, but are certainly feeling the downdraft of soybeans and much of the rest of the commodity sector. Even the meat complex faces problems created by a strong dollar capping exports, while cheap feed prices encourage expansion of the nation’s hog herd. The next role of the market is to stimulate increased demand with these lower prices and that will take some time.
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