Live cattle futures have held their rally that started with the Thursday, Oct. 13, low of $97.80 per cwt, and the market seems to want to add more bullishness into the equation, that is, if the US dollar will cooperate.
Many market analysts in October and through November kept advising scale-up hedge selling by cattle producers, saying there was just too much meat and cattle for the rally to continue. Most would have given a nod for the Feb contract to run a sideways trade between $90 and $110 per cwt, but few could say they foresaw a rally back to Wednesday’s high of $114.45.
INDICATORS
Friday’s formation on candlestick charts was a “spinning top” on candlestick charts and an inside trading day on western charts. Both show a lack of direction by traders as if they were awaiting some outside influences.
One of the major things traders were awaiting was an announcement by the Federal Open Market Committee about raising the Fed Funds rate, a move that was expected widely by the time the committee made its announcement Wednesday after its two-day monthly meeting.
Amid signs the US economy could break loose from its near-stagnation moorings after Donald Trump won the election, the FOMC Wednesday announced the first interest rate hike in a year, moving the fed funds rate to a range of $0.5% to $0.75% from $0.25% to $0.5%. It also said it foresaw three more increases next year, two or three in 2018 and three in 2019.
The stock market reacted calmly, and a stock broker said much of the first interest rate increase, at least, may already be in the market.
The committee also approved a 25-point increase in the discount rate to 1.25% from 1.00%.
INVESTOR CHANGES
Investments by average investors are likely to change little in the near future. Putting money into savings accounts gains about 0.11% currently, so they’re liable do little switching of investments.
A CNBC article said the Federal Reserve and inflation all have some influence over long-term fixed mortgage rates, which usually are pegged to yields on US Treasury notes. But with interest rates heading higher, mortgage rates will follow.
Especially vulnerable will be the adjustable-rate mortgages.
Another CNBC article said most investors will be advised to not panic and to remain diversified. The bonds eventually will be offset by more income from debt issued at higher rates.
DOW OVERBOUGHT?
Besides, the Dow Jones Industrial Average appears a bid tired of its latest rally, analysts said. In technical terms, the market is overbought and due for a setback.
One analyst, Harry Dent, said the post-Trump victory rally is setting investors up for an inevitable stock market crash. This won’t take place for a while – it will take traders a while to figure out they have unreasonable expectations. But once that truth settles in, a crash is inevitable.
CASH CATTLE TRADE QUIET
Superior auction prices Wednesday were steady to slightly stronger at an average of $110.47 in a range from $110 to $111.50 in the south to $109.50 to $111 in the north.
Cash action then got underway at $110 to $111.50 on a live basis, steady to down $0.50. No dressed-basis trading was reported.
The USDA’s choice cutout Wednesday was $0.85 per cwt lower at $190.88, while select was up $1.03 at $176.37. The choice/select spread narrowed to $14.51 from $16.39 with 95 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $129.93 per cwt, down $0.21. This compares with Wednesday’s Jan settlement at $127.70, down $1.27.