Commodity Corner: Morning Comments

Good morning,


DXH0  97.975  +0.166                GCJ0  1557.0  +1.5                  ESH0  3328.00  +28.50                CLH0  51.08  +1.47


Equities have resumed the push higher overnight, following President Trump’s state of the union address and ahead of the expected acquittal of the impeachment proceedings.  Possibly the bigger item that came out at the beginning of the European trade, and possibly gave stocks the initial thrust, was a report that researchers a very close to having a drug to cure the coronavirus.  The timing of when this report hit the market lines up very well with the timing of when ESH0 popped.


Crude oil remains the market in the spotlight today.  Yesterday’s settle below $50 clearly triggered some sell stops and establish shorts into the close signals.  Further added to this was the API projecting US crude inventories rose by more than expected 4.18m barrels last week (expected +3.0m).  Aside from the risk on tone derived from optimism over a possible vaccine, oil is also getting support from a second session within OPEC+ where further production cuts in the face of the potential large demand decline from the coronavirus, with the hope that Russia gets on board.  When it hit the market yesterday that Russia may not be in favor of further cuts, oil had a sharp move down.  With yesterday’s close below $50, there could be some fresh shorts that find themselves poorly located here on this bounce, and any bullish news on more production cuts from OPEC could prompt a quick exit from the trade.  The DOE releases weekly production and inventory figures later this morning, where a stock build is expected.


Not surprisingly, gold prices were hit hard yesterday, as the risk on tone across numerous asset classes led to an unwind of safe haven positioning.  As global monetary policy appears to be stable for the moment, waiting to see what the impact from  the coronavirus will be on the global economy, gold loses some support.  If the rally across assets continues, and gold keeps rotating lower, there should eb some support for gold (GCJ0) below $1525.


Moving to the “ags” complex, grains staged a small rally yesterday with all the optimism circulating about.  US export sales are still somewhat disappointing, it is expected there will be a downtick, or disruption to trade with China from the virus, and the South American crop size projections keep increasing.  All of these factors helped keep a lid on the rally in grains.  Cotton prices recovered yesterday, on renewed optimism in trade.


Looking at other commodities, sugar continued to trade up, posting a 2 year high.  Reports on the size of the expected supply deficit continue to grow, which just provides more ammunition for traders already carrying a strong long  position in sugar.  Cocoa futures were higher again yesterday as well.  A strong demand base, being able to withstand any effects from the virus, along with the continued convergence of futures prices with cash, from the living income differential for growers, continues to boost prices up.  Cocoa prices are up over 8% for the year, and the commodity research team at a major bank is saying prices can remain elevated for the first half of the year.  Looking at the breakfast drinks, orange juice futures were down 2% yesterday, moving to an 8 month low, as consumption concerns remain weighing on orange juice prices.  It has been a pretty big cold and flu season in the US, but that really hasn’t translated into an increase in demand for orange juice.  Coffee futures, which have been in the midst of a large decline over the year thus far, caught its collective breath a bit yesterday, closing up slightly.  This market has been in a technically oversold condition for several sessions, and the support other markets received from the risk on tone proved to be a temporary resting point for coffee.


Regarding US economic data, the ADSP Employment Index for January was just released, showing employment increased by 291k last month, sharply higher than the expected increase of 158k.  Assets got another boost up on the data, and fixed income markets took another leg lower.  The ADP is often thought to be the precursor for Friday’s  non-farm payrolls report.  Payrolls in January are expected to increase by 162k, compared to 145k in December.  Given today’s number, the market may raise expectations for Friday’s data.  Also released was the trade balance number for December.  While the deficit for the month came in slightly above expectations, it also reported that the US trade gap for 2019 narrowed to $616.8B, which is the first drop in 6 years.  Released later this morning will be the non-manufacturing purchasing managers’ report for January.  These reports in Europe this morning showed slight increases.


Keep an eye on the trade In oil today, and on any news coming from the OPEC+ talks.                   


Technical Moving Averages:

Product               50 day                100 day               200 day

SH0                      919.00                   928.50                   918.50

CH0                      383.75                   388.00                   404.25

WH0                    549.00                   529.00                   519.00

KWH0                  465.25                   447.00                   458.00

MWH0                536.75                   540.25                   548.50

SMH0                  300.7                     304.7                     309.1

BOH0                   32.71                     31.76                     30.39

CLH0                    58.00                     56.45                     56.44

GCJ0                    1524.7                   1516.3                   1466.6

LHJ0                     73.990                   77.400                   79.220

LCJ0                     125.705                 123.475                 120.190

KCH0                   120.15                   112.25                   109.10

CCH0                   2602                       2551                       2471

CTH0                   68.03                     66.03                     65.94

SBH0                    13.68                     13.07                     13.08

JOH0                    98.95                     101.45                   106.40

HGH0                   273.90                   268.95                   269.35





Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC