Good morning,
DXH0 97.975 +0.140 GCJ0 1574.5 -1.3 ESH0 3290.00 +11.75 CLH0 54.10 +0.62
Today is day 2 of the Federal Reserve monetary policy meeting. The decision on short term rates will be released at 1 PM CST (no change is expected), along with the text accompanying the decision. There is a chance to see some changes in the rhetoric, given the recent geo-political events both in the Middle East and with the Chinese virus. Fed Chairman Powell will then hold a press conference at 1:30 PM CST. Of course, any changes to policy or rhetoric can have a big impact on numerous markets, so it could be a relatively quiet trade ahead of this and a reactionary trade following.
Equities continue to grind back up, in spite of more coronavirus cases being reported and reports that the Republicans may not have the votes to block the allowance of witnesses at the impeachment hearings. Gold prices have firmed back up to unchanged levels in the European trade, having continued the safe haven unwind in the Asian hours. Oil prices, mounting a rally yesterday driven by concerns about Libyan production, further production cuts form OPEC+ driven by even lower demand caused by the impacts of the virus and the “risk on” tone being generated in equities. Citi’s Ed Morse, a very well respected research economist in the energy sector, was on the tapes suggesting OPEC would need to be more aggressive in production cuts from the likely reduction in demand. Oil then received a further push into the overnight trade from the API projection of US crude stocks dropping by 4.27m barrels last week, where the market is expecting a build of 1.29m barrels.
Commodity prices, for the most part, took it on the chin yesterday from virus related demand concerns, especially in the early hours. There were a few exceptions out there. Corn had a decent day higher, driven by another reported export sale to Mexico, marking the 6th such sale in the span of a week. Cotton also was firm, as hopes for US demand was bolstered by the reported news that India was halting cotton sales to China, due to the virus. Lean hogs closed the session higher, having been locked limit down the prior day. Live cattle, which was also limit down on Monday, still finished a touch weaker yesterday. Sugar prices also got back on track moving higher, as the bounce in oil prices brings back the expectation of Brazilian millers focusing on ethanol production from cane as opposed to sugar, thus adding to the potential of a sugar supply deficit next year.
As mentioned, many commodities were under pressure yesterday, not surprising given the expected demand hit from China. Coffee prices, having been hit hard on Monday, were down over $1.50 again yesterday. This puts the price of coffee down close to 40 cents from the highs made in mid-December. Soybeans were down, but bounced off the lows, on China. Wheat prices were also lower, as the global rally in wheat, coupled with the continued strength in the dollar, makes US wheat prices uncompetitive in the export arena. Copper prices have been also been hit hard on the China news, with a big impact on industrial usage expected. Cocoa futures also took a hit, in part on the demand scenario, but also more of a corrective nature, as cocoa prices have been undertaking a big rally of late, due to weather related production issues and price convergence between futures and cash prices.
Friday marks month end, which could bring in some additional price volatility to the trade, as profit taking or position squaring can drive prices. The recent decline across many asset classes may be causing some to re-evaluate how they want to be positioned, moving into next month. This can become more of a factor after the market sees how the Fed thinks about things.
Technical Moving Averages:
Product 50 day 100 day 200 day
SH0 923.75 929.00 920.00
CH0 383.50 387.50 404.75
WH0 544.50 525.00 517.50
KWH0 461.50 444.25 458.25
MWH0 535.25 539.25 549.25
SMH0 302.3 305.1 309.8
BOH0 32.77 31.68 30.39
CLH0 58.51 56.64 56.71
GCJ0 1515.4 1513.6 1460.0
LHJ0 75.250 78.010 79.820
LCJ0 126.295 123.070 120.340
KCH0 121.05 112.35 109.15
CCH0 2592 2527 2462
CTH0 67.79 65.61 66.16
SBH0 13.49 12.93 13.06
JOH0 99.60 102.10 107.05
HGH0 275.10 269.50 270.45
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404