Good morning,
DXH0 96.025 -0.364 GCJ0 1667.8 +7.5 ESH0 2785.75 -80.00 CLJ0 33.37 -0.99
Apparent coordinated central bank intervention, providing monetary stimulus to the markets, gave markets some small reprieve from the downward slope most markets found themselves on last evening. BOE cut short rates by 50 bps, followed by Iceland also cutting 50 bps. ECB President Lagarde was on the tape, saying the ECB is prepared to act in whatever manner necessary. Assets were initially lower on disappointment, in part over President Trump not having a concrete plan in place for the economic support he promised to deliver. The central bank rate cuts, and perception that other CB’s will be following suit, allowed prices to pop at the European open. However, things have now rotated back down again.
Oil remains at the heart of the story as well, with Saudi Arabia and the UAE announcing even further increases to production. Russia’s oil minister was also on the tapes overnight, holding firm to the belief that the production quotas agreed upon back in December should remain in place throughout 2020. Russia is prepared to return to pre-quota production levels, which would add 500k barrels/day to its production. Minister Novak also said that Russia is in constant communication with many OPEC countries, and the situation continues to be analyzed. Meanwhile, back in the US, the API projected weekly US crude inventories rose by 6.41m barrels last week, when the market was expecting a build of only 1.7m barrels. The question now facing US producers, as oil prices drop and margins get squeezed, becomes at what point is production no longer profitable. Oil futures popped to a new high for the correction off the lows (36.35), only to drop $3 on the ramped up production talk out of the Middle East and Russia’s continuing hard stance.
Gold remains an interesting trade, as the safe haven trade which took gold futures above $1700 on Sunday night, has a bid but is well off those highs. Many found the sharp break off of these Sunday highs somewhat confusing, with many thinking gold just got caught up in the entire asset meltdown that took place on Monday. With all of the continued uncertainty, not only in the spread and containment of the virus itself, but also what the global economic fallout form all of this will be, gold should continue to be supported. US Treasuries, and other fixed income markets will also receive the same treatment, with underlying support coming from the safety harbinger view. Treasuries will be susceptible to decent sized corrections down, when positive news provides some hope, but overall these markets remain in a bullish pattern.
The grain markets did receive the monthly supply and demand report from the USDA yesterday in the WASDE, but with everything else taking place in the global landscape, this data took a backseat. There were no noticeable changes to the domestic balance sheet, while the global inventory data was raised in soybeans and corn, while reduced a touch in wheat. The USDA increased its projections for the South American soybean crop, while keeping corn the same. It should be pointed out that very large production is expected out of both Brazil and Argentina. This impacted the global stocks numbers. Wheat’s inventories are impacted by the poor crop coming out of Australia, and some potential concerns with some of the crops in the Black Sea. The cotton data in the WASDE saw a projected decrease to US production and inventories, but an increase to the same data on a global view. World consumption is expected to take a hit, assuming from the impact of the virus globally on demand. Secretary Perdue was on the tapes yesterday, commenting on overall trade with China, given the Phase 1 trade deal but also from the virus effect, and said he expects there to be some delay to the implementation of starting the increased trade, but that he still expects China to stick to its commitments.
Coffee prices rallied again yesterday, in part catching the “up” wave with other assets but also due to the correction higher in the Brazilian real. The strengthening real keeps producers from aggressively pricing coffee. Interestingly, coffee managed to trade higher, even with the estimate for the 2020-21 Brazilian coffee crop being raised by 1% to 57.0 m bags. Sugar prices continued to sag, as more long positions get unwound from the overall asset correction. Sugar prices had spiked to multi year highs on the prospects of reduced available supply, partially from the worst drought observed in Thailand in several decades.
The market inputs should remain the same as they have been. Namely, any concrete news on Trump’s proposals, progress (or further breakdown) on OPEC+ production talks and additional action from central banks. Many in the market think the Fed, given the BOE’s emergency move overnight, could come in as early as today, and cut rates an additional 50 bps. This outcome is fully priced into the decision expected after the meeting next week, but if assets take another hard leg down, the Fed could be pushed to move sooner.
Technical Moving Averages:
Product 50 day 100 day 200 day
SK0 916.50 929.50 929.50
CK0 386.50 389.75 406.75
WK0 552.25 541.50 529.25
KWK0 479.00 463.50 467.00
MWK0 547.00 544.25 553.50
SMK0 301.6 305.6 311.1
BOK0 31.84 31.97 30.83
CLJ0 52.88 54.81 54.65
GCJ0 1589.1 1540.0 1503.3
LHJ0 68.895 73.360 76.605
LCJ0 119.960 122.610 119.575
KCK0 112.80 115.35 112.00
CCK0 2716 2634 2526
CTK0 68.48 67.73 66.01
SBK0 14.19 13.55 13.26
JOK0 99.60 102.20 107.30
HGK0 266.65 268.75 267.15
HOJ0 171.18 180.79 183.71
XBJ0 170.47 175.85 174.28
NGJ0 1.942 2.104 2.238
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404