Good morning,
DXH0 97.435 +0.313 GCJ0 1639.1 -5.3 ESH0 3053.00 +56.00 CLJ0 47.91 +0.73
Another start to the day with all apparently right in the world, following the Fed’s surprising cut of 50 bps, other central banks also on board to provide stimulus and Joe Biden’s strong showing coming out of Super Tuesday. Even with the Fed delivering 50 bps yesterday, the markets are commanding much more, as US fixed income markets rallied sharply further, implying additional cuts coming from the Fed as the US 10 year yield broke thru 1%. Gold had a monstrous rally, as global central bank easing pushes investors towards gold. With the great deal of uncertainty still surrounding the virus, and the numerous impacts to the economy, gold should continue to stay supported.
Oil prices had another volatile session yesterday, bouncing to the session highs early in the day, only to get hit, along with other assets, when the smoked cleared following the Fed cut. The early bid came from expectations of an aggressive cut to production quotas coming out of the OPEC+ meeting at the end of this week. However, when the size of the additional cuts of 600k to 1m barrels was being discusses in the market, this also brought some disappointment to prices. The market would like to see the additional production quota cuts coming in at over 1m barrels (which Saudi Arabia is also pushing for). The OPEC meeting begins tomorrow, and Russia gets included in the conversation on Friday. Russia appears to be the key to where the production quota cuts conversation goes. Oil has bounced in the overnight trade, following the equity bounce but also as API projected a weekly inventory build in the US of only 1.69m barrels, where the market is expecting a stock build of 3m barrels. The DOE releases its data later today.
Weather continues to play a significant role in the price action of other commodities as well. Coffee feeling the biggest effect, as persistent rains now impact the crops, following a stressful start to the season from hot and dry conditions. The added risk of the rains, in particular for the Ugandan coffee crop, as the threat of locusts develops. Coffee prices were up over $6 yesterday, with the move over the past 3 sessions the largest since 2016, bringing the recent rally to a very overbought condition. This fact, coupled with a decent coffee crop still expected out of Brazil, has prices correcting lower today.
Weather also provided a bid to corn prices yesterday, as above normal rainfall is expected in the corn belt over planting season. Following the severe flooding last spring, and very long delays to planting, some weather premium is being added to prices. Soybeans were also slightly higher on this. Wheat prices were up yesterday, as rumors of purchase inquiries from China circulated throughout the market. Wheat prices were under pressure on Monday, as the above normal rains forecast throughout the spring, are considered beneficial for the wheat crops that were in danger of facing some moisture deficiencies, due to less snow cover. Cotton prices are also benefitting from weather this morning, as southern rains are thought to bring delays to cotton planting. Cotton is also getting a bid from the expectations that the global stimulus coming from the central banks will help with demand.
The economic constraints, stemming from the virus, also reached other markets. Lumber was locked limit down ($18), putting tis price at a 10 week low. Copper prices continue to track equities, being down yesterday and having a slight bid this morning. Sugar is also experiencing a decent correction lower following the recent rally which saw prices shoot to multi year highs on the expected supply deficit, primarily coming from the worst drought in Thailand in several decades.
While the coronavirus and the global central bank stimulus program remain center stage for all markets, this is a relatively heavy week on the US economic calendar (not that it really matters). This morning, the ADP Employment Index for February was released, with the number coming in above consensus at +183k (expected +170). However, last month’s number was revised lower to 209k from an initial report of +291k, thus resulting in a net lower number than expected. Fixed income markers may have turned bid for a second on this, but any bullish sentiment didn’t last long. The market also get as look at non-manufacturing ISM (purchasing managers survey), where a slightly lower number from last month is expected. The Federal Reserve also releases the Beige Book this afternoon, typically used as a precursor for the coming Fed meeting. However, given yesterday’s action from the Fed, and the market’s forward expectations for the Fed and other central banks, the Beige Book will also be viewed as old or insignificant news.
Technical Moving Averages:
Product 50 day 100 day 200 day
SK0 923.00 933.50 929.25
CK0 388.00 391.25 407.75
WK0 555.25 541.00 529.00
KWK0 481.50 463.00 468.25
MWK0 549.50 546.50 555.00
SMK0 302.0 306.4 311.2
BOK0 32.43 32.08 30.83
CLJ0 54.94 55.46 55.15
GCJ0 1572.7 1532.2 1494.3
LHJ0 70.200 74.280 77.120
LCJ0 121.970 123.290 119.875
KCK0 114.60 114.75 111.75
CCK0 2702 2630 2522
CTK0 69.18 67.81 66.16
SBK0 14.24 13.53 13.26
JOK0 100.55 102.70 107.75
HGK0 269.45 269.15 267.60
HOJ0 177.62 183.18 185.40
XBJ0 175.96 177.72 175.57
NGJ0 1.978 2.126 2.258
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404