Good morning,
DXM0 99.550 -0.547 GCM0 1725.9 +2.1 ESM0 2909.00 +40.00 CLM0 11.68 -1.10
Risk on appears to be in full force today, in spite of front month oil futures contracts taking another swoon lower yesterday and last evening. USO and other ETF’s are abandoning positioning in the front part of the oil futures curve, and this is taking the flat price and spreads lower. This redistribution of positions was discussed and probably a decent portion executed last week already, but the mass exodus continues. Many clearing firms have raised margin levels to very high amounts for the front month WTI contract, also forcing the trade away from this contract. The OPEC+ production cuts have already begun (scheduled to begin May 1), but the market is quickly realizing it still won’t be enough. Available storage is believed to be taken to capacity in 2 to 3 weeks, thus the WTI June futures contract is likely to experience a fate similar to May. Brent crude is facing storage concerns of its own as well.
Gold futures are hanging around unchanged right now, having taken a little dip in the overnight trade. The “risk on” enthusiasm, coupled with the need to raise additional margin cash from the oil traders, pushed gold prices lower. The GCM0 contract did hold well above $1700, so, overall the contract appears to be in decent shape.
The grain market is responding to yesterday afternoon’s crop conditions and progress report released by the USDA. Winter wheat conditions declined marginally last week, but remains 10% behind a year ago conditions. There was concern of a possible bigger decline in conditions, following the cold temperatures observed over the last 10 days. Looking at planting progress, the data showed the farmers have gotten after it, getting out into the fields. Corn planting came in a touch higher than estimates, and above the 5 year average. It was well ahead of last year’s level, but everyone is aware of the planting issues of last year. Soybean planting has also begun, and is ahead of the 5 yr average as well. Spring wheat is a fair amount behind the 5 yr average, but the northern Plains is where the more detrimental weather has taken place. In addition to the slight downtick in conditions, US wheat prices are also supported by the announcement that Russia has hit its export cap for this season. While countries, including Egypt, are still looking to source wheat, Europe becomes the favorite to gain market share, but the US is right there as well. Soybeans are receiving some support from announced purchases of US beans by China. This is thought to be part of Phase 1 of the trade deal. Brazil’s beans are cheaper than the US, but it is thought that if China lifts all the internal tariffs, the price is more competitive.
Coffee prices are attempting to recover today, having been hit hard over the past few sessions. The Brazilian real has been pounded to new lows as the political turmoil unravels there, and as oil continues to sag. Hope of an economic recovery is also boosting coffee. Cotton is also benefitting from this hope, along with the thought that if China is trying to ramp up the trade with the US, cotton should see an increase in demand as well. Sugar prices traded down to a 12 year low yesterday, as the energy sector weighs on the viability of cane ethanol production, hence leading to more sugar production. In addition, Friday’s COT data from the CFTC showed spec shorts were added to in sugar. At some point, this market could be vulnerable to a type of short covering rally. However, in the absence of any weather issues, oil futures probably need to find some stability before the sugar trade becomes overly concerned about a short cover.
The Federal Reserve is holding its next 2 day monetary policy meeting today and tomorrow. Given the stimulus already supplied to help the economy get through the coronavirus, no additional changes to policy are expected from this meeting. However, Chairman Powell’s press conference tomorrow afternoon will receive a great deal of attention, as all markets will be looking for his views on the longer term risks for the global economy, coming out of the pandemic.
Continuation of the current “euphoric” sentiment in the equity markets, and the continuing bloodbath in the front oil futures contracts will hold the market’s attention today.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN0 874.75 908.75 925.75
CN0 354.75 375.00 392.25
WN0 537.75 546.25 529.50
KWN0 475.75 480.25 466.50
MWN0 533.25 545.00 551.00
SMN0 304.3 305.9 310.6
BON0 27.73 30.55 30.66
CLM0 32.81 44.64 49.31
GCM0 1645.5 1594.8 1550.9
LHM0 65.450 75.515 82.225
LCM0 93.520 104.980 108.355
KCN0 115.25 118.60 114.25
CCN0 2456 2556 2495
CTN0 58.17 64.17 64.44
SBN0 11.76 12.86 12.83
JON0 106.40 105.45 108.55
HGN0 237.95 256.10 260.85
HOM0 118.12 151.35 167.80
XBM0 100.28 139.83 156.67
NGM0 1.885 2.021 2.182
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404