Good morning,
DXH0 96.530 -0.215 GCG0 1482.5 +1.3 ESH0 3189.50 +14.25 CLF0 60.07 0.00
Risk on remains in full force this morning, although volumes have been modest, riding the wave of momentum generated from phase 1 of the trade deal, the Fed’s view on the economy and monetary policy and the UK election. Friendly industrial production data out of China last evening is getting the credit for this last push higher. Output in November was +6.2% y/y vs an expected +5%.
Industrial metals continue to rip higher, on the trade sentiment and recent China data. Copper prices are trading at the highest prices in over 6 months. This bid to the industrials is helping to support gold prices, which could be prone to an unwinding of safe haven trades in a risk on environment. Gold also could get some support into year end as a means of parking assets while profits are taken in other products.
Oil prices settled above the psychological $60 price on Friday, and interestingly really didn’t bring any fresh buying in to the close. Prices are trading cautiously above this level, as production and inventory data out of the US comes midweek. The concern is seeing production or stocks numbers above what is expected by the market. If this hurdle can be cleared, oil prices could get another leg up.
Grain prices are higher this morning, as the recent winter storm, bringing heavy snow and colder temperatures put a bid into prices. There are some unharvested corn and bean crops still out there, and this storm certainly won’t be good there. Winter wheat, which hasn’t reached dormancy yet, faces damage risk from this storm. There is also a seasonal trade taking place, where grain prices tend to rally coming out of harvest. This could be in play here as well. The COT data from the CFTC showed funds continue to carry a decent sized spec short in corn and beans. The report also showed a small short in cotton, but as that data is collected on Tuesday, and prices rallied all week, this position may now be a long one. Cotton prices are higher again this morning.
Coffee continues to be the main story in the soft commodities. In spite of having a lower close on Friday, prices did manage to trade at a 2 year high on Friday, in what has been a huge rally over the past couple of weeks. Potential supply shortfalls, FX moves and aggressive forward pricing/sales of coffee are all contributing to this rally. Sugar prices are also trading at the highs of the range, receiving support from weather related growing concerns along with producers focusing on using cane to produce ethanol over sugar. The positive momentum from the trade agreement is giving a lift to many commodity markets. Lean hogs are also being aided here, not only from trade but on new reports of ASF cases popping up in China. Last season’s epidemic cost China almost 50% of its herd, and another round this year would be devasting. To make up for the domestic shortfall, China has been sourcing hogs from countries other than the US during the trade negotiations, but could be back to the US, especially following phase 1.
The early part of this week is relatively light, in terms of US economic data, with a little heavier load towards week’s end. This most likely will be the most liquid, in terms of participation and volumes, for the rest of the year, which could bring in some year end profit taking or window dressing type of trading. Of course, Twitter or tape bombs on trade are always a potential risk to the trade.
Technical Moving Averages:
Product 50 day 100 day 200 day
SF0 919.25 907.00 912.25
CH0 389.25 391.50 407.25
WH0 519.50 504.75 509.00
KWH0 434.00 430.75 460.25
MWH0 534.75 534.75 554.50
SMF0 304.1 302.8 310.4
BOF0 30.96 30.12 29.67
CLF0 56.21 55.66 57.32
GCG0 1488.4 1500.3 1424.7
LHG0 72.150 72.395 76.050
LCG0 122.850 117.695 118.155
KCH0 110.60 106.85 107.25
CCH0 2544 2444 2421
CTH0 65.22 63.10 67.10
SBH0 12.68 12.59 13.06
JOF0 99.65 102.05 108.75
HGH0 266.70 264.20 272.40
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404