Good morning,
DXH0 97.560 -0.146 GCJ0 1584.8 -4.4 ESH0 3276.25 -13.50 CLH0 52.38 +0.24
An event filled month comes to a close today, with equities sharply off the highs posted earlier in the month, but still in positive territory for the month. Oil finds itself sharply lower for the month, down approximately 14%, as concerns about the health of the global economy, driven by the coronavirus which could lead to a big drop in demand. Adding to this is the continued strong production and inventory data coming out of the US. Oil prices are up about $1 off the lows put in yesterday, and the potential for a severe global supply/demand imbalance keeps a lid on prices at the moment. Gold prices, while also about $30 off the highs posted towards the beginning of the month, are still substantially higher than where they were at the end of December. The safe haven status of gold certainly came back into play this month.
Many commodities have observed big moves over the month. Coffee has been in a massive decline, as a strong production recovery, coupled with spec funds aggressively adding to short positions, drives prices lower. Coffee prices find themselves down a fair amount again today. Supply is also a story for sugar and cocoa, but the opposite way, as concerns about a deficit in the coming year has led to a sharp rally in both of these, taking prices to multi year highs. Weather related growing issues, coupled with production shifts and strong demand have led to this supply shortage talk. Spec funds have been piling into long positions on this move as well.
Taking a look at a few products on more of a short term view, the coronavirus has had a big impact on cotton, lean hogs, copper and soybeans, 3 markets that rely heavily on trade with China. The uncertainties about the extent of the virus across China have led to declines in soybeans and cotton this week. Lean hogs have observed a steep drop to prices, with the trade being locked limit down 3 times already this week. Copper has been lower for 13 consecutive sessions, down almost 10% for the month, again on a presumed reduction of industrial usage.
While lower demand has had an impact on numerous markets, there has been some hope for the corn and wheat markets this week. Mexico has made many purchases of US corn over the past 10 days, helping support prices. For wheat, in Egypt’s purchase tender yesterday, France won the trade over its Black Sea counterparts, providing a glimmer of hope for US wheat producers to possibly have a chance a gaining some export market share. Adding to this hope is Australia reporting a large reduction to it’s wheat production this year, due to severe droughts.
The declining dollar may provide some support to commodity prices at some point, but the more immediate global demand story is taking precedence at the moment.
There is some potential for some event laden volatility to creep into the markets. More reports on the coronavirus, the status of the US impeachment proceedings, the official start of Brexit and China, along with many Asian markets, returning from the new year holiday, can certainly bring some havoc to the trade.
Technical Moving Averages:
Product 50 day 100 day 200 day
SH0 921.75 929.00 919.50
CH0 383.50 387.75 404.50
WH0 546.50 526.75 518.00
KWH0 463.25 445.50 458.25
MWH0 535.75 539.75 549.00
SMH0 301.7 305.0 309.5
BOH0 32.77 31.72 30.39
CLH0 58.34 56.60 56.62
GCJ0 1519.3 1514.6 1462.6
LHJ0 74.760 77.800 79.635
LCJ0 126.060 123.245 120.285
KCH0 120.70 112.40 109.15
CCH0 2595 2537 2466
CTH0 67.91 65.81 66.09
SBH0 13.56 12.98 13.07
JOH0 99.35 101.85 106.80
HGH0 274.70 269.30 270.05
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404