Commodity Corner: Morning Comments

Good morning,

DXZ9  99.17  +0.149                     GCZ9  1472.4  -0.5                 ESZ9  2984.50  +6.00                   CLX9  54.46  +0.39


Welcome to the 4th quarter for 2019!  The trade today sees US equities continuing to grind towards 3000 (ESZ9), while the dollar remains firm and gold continues the large, liquidating sell off.  The oil market had a small gap higher open last night, from yesterday’s settle, managing to find support just in front of the $54 area.  The grain markets are lower today, following yesterday’s price friendly inventory report, which caused spec shorts to cover positions.

Gold is the biggest mover over the past few sessions.  Touching a low price overnight almost $100 lower than the high for the year.  Long liquidation, with quarter end, coupled with a view that global monetary policies going forward may not to be as aggressive with an easing stance as what it was thought to be even a few weeks ago.  The stronger dollar impacts the demand for gold, and the sense of “risk on” sentiment to begin the new quarter also hurts gold.  If gold continues this correction to the downside, some levels to watch are 1433.8 (100 day moving average) and 1376.9 (200 day moving average) for the GCZ9 contract.  These areas should be good support for the market, and a breach with some momentum could trigger some additional sell stops being elected.  It could also generate “sell” signals for the algo community.  It’s hard to believe that all is well with the world, especially as the continued unrest in Hong Kong takes place over this Chinese holiday, so it’s hard not to think that there may be some opportunities at current prices, while overall positioning comes more into balance.

Copper prices are trading down, in spite of the US equity strength.  The stronger dollar and some disappointing manufacturing data out of China push copper prices to a 4 week low.  The Chinese markets are closed for a national holiday, so markets may not be as deep as usual, possibly exacerbating part of the move.  Other commodity markets also saw some position squaring as the 3rd quarter came to a close.  Sugar continues to rally, trading at a 7 month high, as the large short position gets whittled away at, with concerns about a supply deficit next year.  Coffee prices rallied yesterday, also in a short covering trade. Cocoa is trading higher today, as a raised price to the floor for cocoa was agreed upon in the Ivory Coast.  Farmers minimum pay there was also increased by over 8%.  There was also a headline that the Ivory Coast and Ghana plan to limit the amount of cocoa output in 2019-20.

Yesterday’s quarterly stocks report was bullish for corn and soybeans, showing smaller inventory figures than what the market had been expecting.  This led to a decent short covering rally for both, probably enhanced by the month end phenomenon.  The market has been suspicious all season about what the actual size of this year’s crops may be, compared to what the USDA continues to project, and yesterday’s data may have been a signal.  The data for wheat was viewed as neutral, with overall production figures a shade below estimates.  The was an increase in the other spring wheat production number, but overall, wheat prices rallied, following the moves in corn and soybeans.  Also providing support for wheat was the massive snowstorm in the northern Plains and southern Canada, as spring wheat attempts to conclude its harvest.  In the afternoon, crop conditions and progress numbers came in, showing that corn and bean harvest, while underway, remains well behind the typical pace.  The data may have been viewed as better than what was expected, but still on a lag.  The risk becomes, as colder temperatures begin to set in, stress and damage to unharvested crops.  Going forward, the weather will be monitored, not only for harvest advancement, but also looking for conditions potentially detrimental to remaining crops.

As mentioned yesterday, this is a big week for economic data and Fed speakers in the US.  Today brings a look at some manufacturing data, and then a few different views on the employment picture come later in the week.  With many thinking the Fed is attempting to take a neutral approach to policy going forward, all inputs will be scrutinized more closely.  Any changes to the market’s views on Fed policy will have impacts across numerous asset classes.

Welcome to the 4th quarter.   Remember to play through the whistle!!

Technical Moving Averages:
Product               50 day                100 day               200 day
SX9                      880.75                   888.50                   911.75
CZ9                      384.75                   409.00                   402.25
WZ9                     483.25                   501.00                   507.25
KWZ9                   415.00                   446.00                   475.25
MWZ9                 521.25                   541.50                   560.50
SMZ9                   300.3                     309.1                     314.4
BOZ9                   29.00                     28.65                     29.39
CLX9                    55.90                     56.69                     57.17
GCZ9                    1501.9                   1433.8                   1376.9
LHZ9                    66.760                   71.340                   70.915
LCZ9                     107.340                 109.400                 114.090
KCZ9                    99.90                     102.80                   105.60
CCZ9                    2333                       2397                       2367
CTZ9                    60.35                     63.24                     68.94
SBH0                    12.50                     12.91                     13.38
JOX9                    102.20                   104.65                   114.20
HGZ9                   261.65                   265.70                   274.65


Michael Clifford

141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC