Good morning,
DXH0 99.460 +0.127 GCJ0 1606.6 +3.0 ESH0 3380.25 +11.00 CLH0 52.88 +0.83
More economic stimulus out of China, in the face of demand concerns resulting from the coronavirus, have provided a lift to equities and some commodities. Oil prices have popped, as WTI comes very close to $53 in the overnight trade. Some of the measures to provide more stimulus in China are direct cash infusions and mergers to revive the airline industry. Oil is benefitting as China is the world’s largest oil importer. OPEC is still discussing/waiting on Russia to decide upon additional cuts to production and Libya has had a dramatic decline in its oil output due to the port blockades. The oil charts now appear to have a decent bottom in place below $50, and the positive sentiment is allowing the push higher.
Gold prices have shot to new highs above $1600, as the impact of the coronavirus on the global economy brings the safe haven status of gold back into the fold. Thoughts of additional central bank stimulus to shore up consumer demand is also supporting gold prices. Prices are approaching a 7 year high, and are up almost 6% YTD. A major wall street firm raised its oil call for the into the beginning of 2021 to $1700, and changed it’s call for the average price of gold for this year to $1640 from $1575.
Natural gas posted a sharp move higher yesterday. Aiding prices was China specifically mentioning liquified natural gas as a commodity eligible for the announced waiver program on products to boost demand beginning March 2. The waivers are good for 1 year. Cotton prices also received a shot in the arm from the announced tariff waivers out of China, clearing the way for more US imports to China as part of phase 1.
The wheat market observed a huge move higher yesterday, as numerous factors drove prices up. The same waiver program for commodities also mentioned grains, and wheat, having thought to be a benefactor from phase 1 of the trade deal received a bid to prices. Australia further reduced its expected wheat production numbers for this year, with ABARES calling production at 15.17 mmt. Production at this level will have a big impact on exports, and create ana opening for other countries. If the ABARES forecast is accurate, it would be the lowest production number since 2008. Severe flooding in the southern part of the US and in regions where SRW is grown is thought to have an impact on US wheat production and yields in these areas. There was already a reduced amount of SRW planted in this area, so the flooding creates an even greater hit to supply out of this area. Corn prices traded higher yesterday, being drug up by the strength in wheat. The grain markets, corn and soybeans in particular, are awaiting the USDA annual outlook conference at the end of this week. Here, the USDA releases its projections on production and inventory for the coming season. Estimates peg corn planted area to be 93.6m acres, vs 89.7m last year and soybeans to be 85.0m vs 76.1m last year. Production and inventories are projected to be up for both from last year’s levels. For wheat, total planted acres is expected to remain the same at 45.2m, while production and inventories are expected to decline here. Estimates for the projections can be found on the Current Data attachment. Soybeans were lower early in the session yesterday, but managed to find support and trade back up towards unchanged into the close. Supporting soybeans was the NOPA crush report showing beans used for crush was larger than expected. Bean oil supplies were also much higher than anticipated, putting some pressure on bean oil prices.
Sugar prices continued trade higher, being up 10% this year, as Thailand’s drought continues to cut into expected output of cane. 50% of the production from the largest parts of the country’s growing area. Mexico also has some reductions to production caused by drought. Brazil, which is fine as far as production is concerned, is facing the millers’ decision to produce more ethanol than sugar with the cane. As sugar prices rally, the millers may find it economical to reconsider their production decisions.
Coffee prices traded lower yesterday, driven down by another decline in the South American currencies, allowing producers to be more aggressive in making sales in the export arena. The dollar is being viewed as a safe haven compared to these currencies. Also hitting prices is the approach of first notice day, and longs moving positioning to avoid delivery.
Data released in the US this morning was January PPI, which came in much stronger than expected at +0.5% m/m for both the gross number and the core, compared to +0.1% last. The annualized numbers were also much higher than expected. January Building Permits also posted the largest increase to permits since 2007. This afternoon, the Federal Reserve releases the minutes from the last monetary policy meeting. Sine Chairman Powell gave his semi annual testimony to Congress last week, the content of the minutes may be somewhat muted. Nonetheless, the market will be looking for any clues it can take, and extrapolate its own coronavirus spin, and decide what policy makers are thinking.
Technical Moving Averages:
Product 50 day 100 day 200 day
SH0 917.25 925.75 917.75
CH0 384.00 387.75 403.50
WH0 553.50 534.50 522.25
KWH0 471.25 451.75 458.50
MWH0 540.50 540.25 547.50
SMH0 298.9 303.6 308.3
BOH0 32.71 31.82 30.46
CLH0 56.89 55.98 55.93
GCJ0 1542.9 1520.8 1478.7
LHJ0 72.285 75.975 78.160
LCJ0 124.505 123.785 120.045
KCK0 119.25 114.25 111.30
CCK0 2665 2601 2501
CTK0 69.48 67.51 66.44
SBK0 14.02 13.36 13.20
JOH0 98.25 100.65 105.60
HGH0 272.55 268.45 267.95
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404