Good morning,
DXZ0 92.880 -0.180 GCZ0 1977.4 +13.7 ESZ0 3402.50 +30.25 CLV0 37.74 +0.48
Equities continue the recovery march back up, following the corrective washout observed last week. Today begins the 2 day Federal Reserve meeting, where accommodative policy is expected to remain in place well into 2022, at this point. There has been talk that the Fed may reveal it’s “dot plot” for 2023 following this meeting tomorrow, so the market will be dialed in for that possibility. The market will also be looking to see if Chairman Powell has any fresh insight on the economy amidst the ongoing pandemic, different from his comments a few weeks ago at Jackson Hole. Another important meeting taking place this week is OPEC+’s Joint Ministerial Meeting, where the task will be monitoring and making any necessary production adjustments to attempt to keep supply and demand in balance. With summer ending and many parts of the world still deeply inflicted with the virus, there is growing concern about a supply build again, as demand declines and production was recently increased. Oil prices finally broke through the $40 support barrier last week on these concerns, and have been basically in a trading range of $37 to $39 for the past few sessions. The OPEC+ news could be the catalyst to get the market to break out of this range.
Gold prices are trading higher today, as the dollar index is softer. The expected soft tone from the Fed should keep a lid on interest rates, which increases the value of gold. Concerns about mounting inflation pressures are also contributing to the support for gold. Gold is also being viewed as a possible portfolio hedge into the US election.
The grain market is still digesting last Friday’s WASDE report, which really didn’t bring many surprises. Yields were revised lower, and some corn acres were taken away, reducing production and inventory numbers. A common response, with prices near the highs heading into the report and with data basically in line, would be to see a sell off. Wheat prices did decline on the increase to global inventories. Corn and soybeans however, shook off the report and maintained its bullish tone. The aggressive buying out of China continues in both corn and soybeans, which explains part of the underlying bid. Another explanation for the continued bid is the funds remaining very concerned about future inflationary pressure to prices. As shown in last Friday’s COT report from the CFTC, funds are now carrying a sizable long position in soybeans, and have closed out (and even flipped to small long) the short position in corn. November soybeans have taken out the $10 resistance level in beans, and look to continue grind higher. The US is controlling the trade with China right now, but Brazil is expecting a very big crop for the upcoming season, so the US producers should be looking to get inventory placed ahead of that. Corn prices continue to grind higher as well. Corn producers will also be looking to make some sales, as the December futures contract continues the trek towards $4. Yesterday afternoon’s crop conditions and progress reports showed a small decline in conditions from the prior week, which was not surprising as the bad news from the Derecho and hot and dry August has already been reflected in the prior reports. On the progress side, this season’s crop is ahead of the 5 year averages. Export movements, from China in particular and harvest progress will be the 2 keys for the grain markets. Of course, any surprising developments from the Fed, which can swing the dollar, could impact many commodity prices as well.
Coffee prices have done an about face, and had the largest move down in the past 5 months. Beneficial weather in Brazil is being credited for the move down. However, this news may have prompted the fund community, which had built up a long position to the highest level in several years, to unwind the position. Over a week ago, coffee prices took out a key resistance price point of $130. This brought fresh buying into the contract. Failure of prices to really mount a large price extension beyond this, coupled with the favorable weather news, provided the rationale to get out. Cotton prices had a sharp rally, following trading higher on Friday as the WASDE showed an expected decline in production. Hurricane Sally is thought to cause some damage to the cotton crop that is already expected to be smaller. Lean Hog futures posted a couple of limit up days last week, and remain firm as new concerns about ASF developed. Germany reported a case of it, and China closed off hog imports from Germany as a result. This created an opportunity for the US to continue with the strong business pipeline to China observed so far this year.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX0 912.25 887.00 901.50
CZ0 342.50 340.25 361.25
WZ0 531.75 525.25 543.00
KWZ0 455.25 465.25 482.00
MWZ0 527.50 532.75 550.00
SMZ0 301.0 298.0 303.7
BOZ0 31.26 29.65 30.48
CLV0 41.36 37.94 42.40
GCZ0 1936.0 1844.5 1721.2
LHZ0 54.115 53.745 58.370
LCZ0 110.080 106.720 109.515
KCZ0 116.65 111.10 116.95
CCZ0 2395 2352 2420
CTZ0 63.61 61.19 63.01
SBV0 12.30 11.79 12.44
JOX0 121.60 122.40 116.50
HGZ0 294.45 272.80 265.70
HOV0 123.82 117.73 138.53
XBV0 117.05 107.54 118.88
NGV0 2.245 2.171 2.187
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404