Good morning,
DXM9 96.860 -0.391 GCQ9 1341.4 +7.8 ESM9 2829.75 +2.00 CLN9 52.02 +0.34
The turbulence in the markets continues, ahead of tomorrow’s important employment data in the US. Not that most markets haven’t had their fair share of excitement, gold, oil and fixed income markets have captured most of the attention. Gold resumes it’s march onwards and upwards, following yesterday’s fairly step correction off the highs. Failure of a trade agreement to be reached between the US and Mexico yesterday has provided support to gold. Oil prices have bounced over $1 from the new lows made yesterday on the break following the oil data showing big increases to production and inventories. Fixed income markets are continuing to attempt to force the Federal Reserve’s hand for cutting rates by marching higher. It has been a volatile trade in fixed income of late, as the market attempts to decipher all the Fed speak and leaf through the economic data. With fixed income markets on or near the highs, tomorrow’s employment data carries more importance than normal, especially with the next Fed meeting coming in a couple of weeks.
On the topic of monetary policy, the ECB just left short term rates unchanged, and will keep them at current levels into 2020. More important, the ECB also announced plans to reinvest in the quantitative easing program, of buying debt, for an extended time. Looking at the market’s response, the ECB wasn’t as dovish as many thought it might be, and the dollar has come under pressure as a result. Looking ahead to tomorrow’s Non-Farm Payrolls report in the US, the market expects to see +180k vs +263k last month (although some estimates are probably being lowered, following yesterday’s disappointing ADP Employment Index number of +27k). The Unemployment Rate is expected to come in at 3.6%. The market should have a better feel about where the Fed sits, regarding monetary policy for the June meeting following this report. The one wild card in all of this is the ongoing trade dispute, as the Fed has cited that it may need to act if the trade disruptions remain prolonged and have an impact on economic growth. The dollar, along with numerous assets, will be effected by where the Fed stands on policy.
Gold has resumed it’s move higher overnight, with the trade story, and lack of progress, receiving credit for the bid. With global central banks all appearing to be in some type of easing program, to stimulate economic growth, and with the US market doing it’s best to force the Fed’s hand, gold benefits. The first target for this uptick is $1350 (GCQ9), which would allow for taking out the old high above $1348+.
Oil had another strong set of data yesterday, with US production and inventories up big, pushing prices to new lows below $51. The $50 area is now in full view on the charts (although CLN9 has corrected back up to just above $52 overnight). Gasoline inventories were also higher, so the rally in early May which pushed prices up above $65 on concerns about a supply squeeze, have abated and then some. Part of the bid in oil that developed off the lows yesterday can be attributed to comments coming from OPEC’s Secretary General Barkindo, saying OPEC+ is committed to a balanced oil market in 2019. OPEC appears determined to bring down global inventories, and has said it is looking to keep the production quotas in place for the remainder of 2019.
Grain markets were lower yesterday, again led by wheat as harvest is beginning for winter wheat. Early reports show decent yields, but lower protein levels, due to the recent rains. Wheat also is under pressure as it is priced too high, compared to global competitors. Corn was hit yesterday, in response to the announcement Tuesday afternoon of Mexico making a large corn purchase from Brazil. As the trade tensions with Mexico continue, news of the US’s top purchaser of corn finding alternative outlets to source does not bode well for prices. There may be some argument that the weather is allowing for some late planting of corn, but most of written off a large percentage of acres destined for corn to be switched to beans, or prevent plant. Speaking of soybeans, they are lower today, as a combination of increased planted acres and the extended weather forecasts appearing to provide planting opportunities weighs on prices. A good portion of the grain trade will now become position squaring / set up for the next WASDE report from the USDA, coming Tuesday (estimates for this report can be found on the Current Data attachment).
Other commodity markets were hit yesterday, with the big break in oil getting credit for setting the overall bearish tone for the commodity space. Once again the breakfast drinks led the charge, with coffee and orange juice posting big down days. Coffee had the biggest move down in 9 years, as Brazilian farmers aggressively sold, attempting to take advantage of the recent run up in prices and the depreciation of the Real. Rising temperatures and diminished risk of frost are also thought to be aiding harvest progress. Cotton was lower, as the market begins to position for the WASDE, where an expected large crop size was reported last month. Again, the ongoing trade dispute brings demand into question. The dollar has come under severe pressure following the ECB decision and President Draghi’s press conference, as the decision and comments are not as dovish as the market wanted to see/hear.
Looking at the weather, there is some rain coming to the Mississippi Delta and in parts of the Eastern Corn Belt towards the end of this coming weekend. Then a dry patch appears in the US in the 6 to 10 day outlook, but temperatures will be cooler, which will be viewed as a huge planting opportunity. For US wheat, which has had quality issues raised from the recent rains, the drying out will be seen as beneficial for crop development, and aiding with the beginning of harvest. There is some rain that appears in the 11 to 15 day outlook. Looking around the globe, the dry conditions in Canada are becoming an issue. There are some scattered rain events in the extended outlook, but overall wheat and canola could be effected by the dryness. There is also a concern that these same dry conditions, and some cooler temperatures, could filter down to the Northern Plains, which could impact spring wheat. Russia also is dealing with some hot and dry weather issues, which will not help the development of wheat there. Russia is still expected to produce a large crop, and any reductions to that could bode well for European and US wheat.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 869.25 900.25 907.75
CN9 378.5 383.25 387.25
WN9 462.5 480.0 511.5
KWN9 428.75 457.25 501.25
MWN9 534.25 552.0 575.75
CLN9 61.65 59.17 60.35
GCQ9 1296.7 1309.1 1279.3
LHN9 93.965 87.650 84.775
LCQ9 112.065 113.670 113.300
KCN9 94.20 99.41 107.11
CCN9 2358 2315 2292
CTN9 73.78 74.58 77.55
SBN9 12.31 12.62 12.63
JON9 106.65 114.40 128.95
HGN9 282.00 282.80 279.35
Have a good day.
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404