Good morning,
DXM9 96.55 -0.102 GCM9 1278.4 +1.2 ESM9 2919.50 +8.00 CLM9 64.48 +0.29
China was the main story overnight, posting better than expected numbers for Q1 GDP (6.4% vs expected 6.3%) and March Retail Sales (+8.7% vs ex +8.4%). This provided a bid to equities, but not an explosion higher. Oil continues to firm in front of today’s inventories reports. These reports have had a friendly spin of late. Gold appears to have found some support, following a sharp move lower over the past few sessions. The grain markets have also found some support today, after yesterday’s sharp move down which took prices to the recent lows. Ongoing trade talks with Japan also have the market’s attention.
Oil markets are higher today, ahead of EIA inventory data. Brent crude has traded above $72 today, and WTI is working its way back towards $65. Yesterday afternoon, API reported that US oil inventories fell by 3.1m bbl, and gasoline inventories fell 3.56m bbl last week. The EIA is expected to show declines in inventories later today. The good economic data from China is also receiving some of the credit for this bid in oil. There was talk yesterday afternoon that the US was mulling the Iranian sanctions, and the impacts keeping oil prices firm. Turkey is said to be expecting the US to grant it a waiver from US sanctions related to purchases of Iranian oil. RBC raised its forecast for 2019 Brent Crude prices by 13%.
The grain markets were hit hard yesterday, led lower by the wheat markets. Concerns about growing global supplies, with estimates for the Russian and German harvests raised yesterday put pressure on prices. Rain across many growing regions globally was also thought to be beneficial for the crops. Kansas City wheat (HRW) for July (KWN9) traded at its lowest prices since the contract was listed in mid-December of 2016. This brought pressure to Chicago wheat prices (SRW) and the spread between the 2 contracts continued to narrow a bit. Soybeans were down by a decent amount as well yesterday. A combination of very good weather for the South American harvest, leading to expectations of a bigger harvest, and poor export numbers from the US drove prices down. Funds, already carrying spec shorts in beans, added on yesterday’s break, as open interest increased over 20k. Soybeans are coming close to the flat price level ($8.50) where the South American farmer no longer has economic incentive to expand soybean planting. Corn was also down yesterday, but not by as much as the other products. Funds continue to carry a record sized spec short position, and appeared to add to this position yesterday. Futures open interest increased by over 23k. Beneficial rain in Brazil is also helping to increase expectations for the size of the corn crop there. Corn prices are working their way back to the lows for the year. If there can be a momentous push through the lows, the funds could attempt to drive prices down hard. They will also probably be quick to take profits, if it appears the market can’t generate any follow through to the downside. Rains in the corn belt may cause some delays to planting, but farmers are prepared to act quickly when planting opportunities present themselves.
Some technical levels for the grains
CK9: 361.25 (10 day MA); 371.75 (50 day MA)
SK9: 897.25 (10 day MA); 907.25 (50 & 200 day MA)
WK9: 460.00 (10 day MA); 471.25 (50 day MA)
KWK9: 428.75 (10 day MA); 449.00 (50 day MA)
Soft commodities were hit yesterday. Each product had its own reasoning for trading down, but a firming of the dollar also applied some pressure. Cocoa prices fell to the lowest prices in 3 weeks, as supplies from West Africa appear sufficient. Cocoa has firmed a bit overnight, as Ghana is cutting its cocoa crop harvest by 6% due to plant disease in its biggest growing area. The disease, while not uncommon to cocoa plants, is quite severe and can lead to lower yields. Sugar was lower yesterday, with production in Thailand expanding. Orange juice continued its push down, as US citrus output remains good. Coffee continues its acceleration down as well, as large supplies out of Brazil, the world’s largest producer and exporter, is keeping inventories at high levels. Coffee is currently trading at low prices not seen since 2005. Cotton is a touch lower, in a corrective trade today. Expected strong demand has been the driver of cotton prices higher. China’s cotton output is expected to drop in 2019-20, helping with this sentiment.
Gold, which traded above $1300 last week, keeps getting hit hard as well, trading to its lowest price since December. The rally in equities was receiving some of the blame, as gold sheds its safe haven status. Prices did trade below the 100 day Moving Average, which may have saw some technical traders get involved in the selling. Gold has found some support in the overnight trade, helped by the good economic data in China. A lower dollar today is also helping. This same Chinese data gave copper a good bid overnight, as industrial metals benefit from the improved economic prospects. It was reported yesterday that speculators had cut its bullish bets in copper by over 31k, so there could be some buying generated by traders looking to get back in. Copper is trading at the upper end of its recent trading range. In addition to the better than expected Chinese economic data, it is anticipated there will be new stimulus measures introduced to also bolster the economy.
On the geopolitical front, keep an eye on Argentina. Annual inflation is running over 50%, and the jobless rate may get as high as 44% this year. Credit default swaps on Argentina are at 3 year wides, which is bad for the peso and for the country’s debt. With President Macri up for re-election in October, the country may be looking for alternative leadership, possibly reverting back to the old guard. Some of the effects of this may be felt in the commodity markets.
The exchanges will be closed on Friday, in observance of Good Friday. Most markets will resume trading on Sunday evening.
Have a good day,
Mike
Mike Clifford
312 604 6404