The one caveat to a sustained equities rally, especially after relatively dovish statements by Powell, is the return of inflation.
This could happen because of:
- Supply chain and geopolitics
- Government debt and interest on debt
- Government spending
- Weather
- A softening of monetary policy that adds liquidity.
But we will know about inflation by watching:
- Silver-and if it can begin to outperform gold
- Oil, if spikes over $80 a barrel
- Sugar, if even with increased production begins to move up back over 23 cents a pound
- The dollar fails 103 and selling pressure returns. Rumor has it through Russia that BRICS is working to create an independent payment system based on digital currencies and blockchain
For today, let’s focus on sugar.
Sugar prices rally during El Nino weather patterns.
With heavy rains in Brazil and drought in India, these factors negatively impact sugar crop production.
El Nino in Thailand has created issues with millers reporting the lowest yield from crushed cane in the least 13 years.
India, the second-largest sugar producer in the world, reported that output fell and has maintained their restrictions on sugar exports.
In past Daily’s I have written about why sugar is a reliable barometer for inflation.
“I love to watch sugar as a barometer for food prices (it’s in practically every processed food product) and as a bellwether for social unrest and inflation.
Folks will fight over sugar when there are shortages….
As more and more reports claim inflation is over, the sweet white stuff is worth watching.” January 23, 2024
Looking at the futures chart, a move over 22.50 cents would be the start of a potential double bottom going back from December.
It would also clear a key moving average.
On our Real Motion momentum indicator, sugar had a mean reversion.
Now with gold and silver rallying, the dollar falling and Powell into the do-nothing mode on rates, sugar could just be the key.
Twitter: @marketminute
The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.
