Good morning,
DXZ9 98.600 -0.065 GCZ9 1510.8 +6.4 ESZ9 2918.75 -18.75 CLX9 51.98 -0.77
The saber rattling continues on trade, ahead of the Chinese delegation coming to the US to resume talks this Thursday. The US announced a group of Chinese companies to be blacklisted yesterday afternoon, and China responded this early in the European trade with a broad declaration that there would be a response from them. Equities had been trading better on favorable economic data from Germany, but quickly sunk into negative territory. Gold, conversely, had a decent move below the $1500 mark, but quickly reversed course and now sits comfortably back above the level. Oil has also observed a decent range in the overnight trade, and is currently lower with the reversal in equities. Grains are lower for the most part today, following a quiet day yesterday. Other commodities are mostly lower, as many of these markets have come more into balance, position wise, following a large short covering trade observed over the past couple of weeks.
The oil market, which has had its fair share of volatility over the past month, continues to get pushed and pulled all over the place. Trade progress, or lack thereof, is the latest driver. This afternoon begins a fresh set of weekly data on US inventories and production rates. Last week’s data showed a significant build in stocks, and concerns grew about a global glut with Saudi Arabia getting back online following the drone attacks last month. Economy prospects will translate top assumptions regarding demand for oil going forward, and will be a major contributor to the price action. Of course, trade progress will be viewed as a positive for the economy, so it should help oil prices as well.
Gold continues to be the stop gap play, when the market view gets cloudy. As mentioned, it was trading well below $1500, when equities were positive and the television broadcasts were beginning to declare today as a “risk on” day. Then, as China’s comments hit the tapes, everything changed. For gold, given all of the uncertainties out in the markets these days, buying this market on dips remains the play, until a prevailing theme emerges. The old low in gold form the break a few weeks ago is down below 1470. That could be a target for any significant corrections down. The old high is up above 1560, but some in the trade were hurt on this sharp break back to the lows, so the market struggles to really generate any fresh buying above 1520 or so, without any significant reason.
The grains had a relatively quiet session yesterday, and the same in the overnight trade. Friday’s COT report from the CFTC showed more short covering took place as the market entered the 4th quarter. The size of the short in corn is still decent, but has eroded greatly in soybeans. China continues to be a good buyer of beans at the export window, as was proven again yesterday with the announced sales. It remains to be seen if beans are once again drug thru the mud with the latest threats and retaliations that have been mentioned over the past 24 hours. Also supportive for corn and soybean prices is the coming weather for this weekend, where cold front moves across the Midwest. This becomes a bigger issue than usual, as yesterday afternoon’s crop progress reports again showed these products well behind on harvest. This cold creates a greater risk of damage to the unharvested crops. In addition, Thursday brings the latest WASDE report from the USDA, where the market again is expecting downward revisions to production and inventory projections (estimates at bottom of current data attachment). So, with fresh inputs on the supply/demand picture, trade negotiations and shifts to the weather, the grain markets are likely to have a range trade in front of the news later in the week. Egypt is coming to market with another purchase tender today, but it is expected that Russia and France may dominate the bidding process. The US remains on the outside looking in here.
The CFTC’s COT report on Friday showed other commodity market also came more into balance during the recent trade. It had been noted that supply concerns were causing the short bases to cover positions. It was reported the spec short in sugar dwindled by over 50k, as of last Tuesday’s reporting date. Coffee and cotton also saw smaller reductions to the short base, while cocoa saw funds get longer, as weather concerns in the Ivory Coast are having an effect on next year’s production expectations. In yesterday’s trade, the coffee market, now more balanced, was able to resume on a path lower. Favorable rains are expected for the growing areas, and technical sell signals were generated as some old low prices on the charts were taken out. Some in the trade there are thinking a move back to the old lows is a possibility. Lean hog futures were limit down yesterday, marking the 5th consecutive day of lower prices. In spite of ASF greatly reducing the domestic hog supply in China, the anticipated strong demand for US hogs really has materialized. Impacts from the ongoing trade talks have been one deterrent, as it is feared that a glut of US hogs could result if no deal is achieved. Reports of China choosing to draw from its strategic pork reserve, as opposed to buying from the US, which carries a higher price due to the tariffs imposed pressures US prices. While a shortage clearly exists in China, the US has yet to benefit from it, which creates some nervous tension amongst the fund community, presently carrying a spec long in hog futures.
So, the theme for the market for the next few sessions should probably be trade, and keeping a watchful eye for any headlines on the subject. Progress, or lack of any, will have significant impacts on almost all assets.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 882.00 892.00 910.75
CZ9 380.75 409.50 401.75
WZ9 482.00 502.75 505.50
KWZ9 410.50 444.75 471.25
MWZ9 521.00 541.25 558.50
SMZ9 299.6 309.3 313.9
BOZ9 29.09 28.75 29.38
CLX9 55.54 56.25 57.19
GCZ9 1509.1 1443.6 1382.6
LHZ9 65.705 70.690 71.045
LCZ9 106.985 109.365 113.940
KCZ9 99.35 103.00 105.25
CCZ9 2330 2404 2371
CTZ9 60.10 62.91 68.55
SBH0 12.48 12.89 13.36
JOX9 101.60 104.40 113.25
HGZ9 260.15 264.75 274.20
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404