Good morning,
DXH0 100.590 +0.786 GCJ0 1498.0 -27.8 ESM0 2393.50 -92.50 (locked 5% limit down) CLJ0 23.85 -3.10
So this roller coaster ride continues, with US equities again locked at the first limit down (5%) barrier, with global equity markets following suit. Unlike the recent history (with the exception being the last couple of days, presumably because of margin calls), gold and fixed income markets (the safe havens) are under pressure as well. More margin pressure is part of the issue, but as all of the global fiscal packages get announced, markets have realized that this will all need to be paid for at some point, thus fixed income assets, in particular longer dated maturities have come under severe pressure over the past 18 hours or so. So, this new development now is quickly turning the only markets that were performing well overall, into a bit of turmoil as well. Unfortunately, this could exacerbate the margin call squeeze.
The other story to note is in the oil market, where WTI crude dropped below $25 in the European trade today. **A quick update to my oil comments here, the price has now dropped below $24, as the assault continues**. This is the lowest price seen in 17 years. The announcement out of the Middle East yesterday that export amounts will be ramped up, to as much as an additional 3m barrels per day drove oil prices down sharply yesterday. Saudi Arabia announced its exports could be increased to 10m barrels per month. In addition to the sharp drop in the WTI price, the spread between WTI and Brent crude has been converging as well, with this spread at the tightest levels in many years. Yesterday afternoon, the API projected US crude inventories declined by 421k barrels last week. The market was expecting a build of 3.5m barrels. This should have provided a little relief to the price fall, but with the feud between Russia and Saudi Arabia getting even more heated, this data wasn’t really paid attention to. With most economists calling for a global recession, the oil demand story continues to weigh on the prices.
Copper prices are also getting hit on the demand story, along with other commodities. For the most part, commodities have been tracking the direction of the equity markets. Cotton prices are at the lowest levels since August. The strength of the dollar index is not helping commodity prices either. There are a couple of exceptions to this general rule of thumb in the commodities world today. Coffee and cocoa are both bouncing off depressed levels this morning. The story there is that these markets were facing supply deficits before the coronavirus story hit prices on the perceived sharp drop in demand. While the lower demand should alleviate some of the supply concerns, the self-isolation movement is putting a premium into some commodities. Coffee prices are trading higher today, as there is a short term supply squeeze taking place in many areas, with consumers grabbing many products viewed as essential. Cocoa prices are also a touch firmer today. Typically there is a seasonal bid to cocoa this time of year, although it doesn’t feel like that could be the catalyst today. However, there could be transport issues in play, which could be making the accessibility of cocoa an issue. Sugar prices continue to move to new lows for the year. Not only is the demand story impacting this market, but the drop in oil prices has Brazilian millers looking to produce more sugar now, and less ethanol. Also, there has been some improvement in the weather conditions in Thailand, which had been experiencing its worst drought in decades which had driven sugar prices up.
I apologize for this commentary being rather brief and choppy, but that’s how the markets are acting as well, so I guess it fits the mood for the time being. Keep watching the same inputs, and stay safe!
Technical Moving Averages:
Product 50 day 100 day 200 day
SK0 904.75 923.50 927.50
CK0 383.00 387.50 404.50
WK0 546.75 539.75 528.25
KWK0 473.00 462.50 464.50
MWK0 541.50 541.25 551.50
SMK0 300.9 304.8 310.4
BOK0 30.91 31.72 30.76
CLJ0 49.81 53.67 54.00
GCJ0 1590.9 1542.4 1509.2
LHJ0 67.015 72.095 75.995
LCJ0 117.005 121.415 119.075
KCK0 110.30 115.65 111.90
CCK0 2708 2631 2526
CTK0 67.41 67.41 65.77
SBK0 13.99 13.51 13.21
JOK0 99.15 101.75 106.80
HGK0 262.70 267.75 266.45
HOJ0 162.21 177.11 181.66
XBJ0 160.01 171.49 171.97
NGJ0 1.911 2.082 2.220
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404