Good morning,
DXM9 97.80 +0.214 GCM9 1274.5 +2.5 ESM9 2929.25 +11.75 CLM9 62.10 +0.29
Welcome to the first Friday of the month, which (almost) always means Non-Farm Payrolls day! To this point the week has provided the market with numerous conflicting signals. The data showed a decent drop in the manufacturing index (ISM), but a big expectations on the jobs front (ADP). The Federal Reserve, operationally cut the excess reserve rate by 5 bps, and cited lower inflation in the headlines, only to have Chairman Powell tell the market that the Fed really is neutral on future policy changes. The week has been a volatile ride for most markets. Equities, fixed income, oil, metals, currencies, grains and the rest of the commodities all have been on the roller coaster. Hopefully, today’s data can provide a bit more clarity to the US outlook, although it feels like the markets may get a couple more loops on this ride. The market expects April Non-Farm Payrolls to report a job increase of 190k, vs +196k last month (ADP printed +275k). The Unemployment Rate is expected to remain at 3.8%. An increase to average hourly earnings is expected.
**NFP printed +263k, w/ last month revised to +189k. Unemployment Rate DROPS to 3.6% from 3.8%. Average hourly earnings come in slightly lower than expectations. Almost all of this commentary was written pre-NFP, so apologies for any inaccuracies that may be caused from the volatility to prices created here.**
Possible confirmation of what was being hinted at with the price action of numerous asset classes was somewhat confirmed overnight, as it was reported that commodity ETF’s had net outflows of $264 m for the week ending May 2, and these outflows have been occurring for the last 5 weeks. Approximately $2.3B has been pulled over this time. At the beginning of this week, the dollar was under pressure, as were commodities and metals, while equities kept surging to new highs. The softer dollar should have been supportive for the commodities, yet they were being hit. With it being month end / month beginning this week, the guess here was asset re-allocation.
So several markets yesterday competed for the biggest story of the day.
Oil prices were hit hard, even with yesterday marking the first day waivers on sanctions against countries buying oil from Iran were removed. Recent data/reports showing big production increases in the US and Russia over producing against its OPEC+ agreed limit alleviated any supply concerns about Iran. If oil keeps drifting lower, especially if the fund community, which has gotten long on the recent rally continues to exit, keep an eye on prices of 60.92 and 60.79 in CLM9. This represents the 50 day and 200 day Moving Averages. These areas should act as initial support, but a break can lead to additional selling pressure.
Gold prices were hit hard yesterday, as the dollar recovered following Fed Chairman Powell’s press conference Wednesday afternoon. Gold traded to prices not seen since mid-December. It was pointed out yesterday to watch the 200 day Moving Average for GCM9, which came in 1267.2 (today it is 1267.3). It was believed this level would serve as support for this market, and a breach with some momentum could exacerbate the selling. Yesterday’s low was 1267.3. I would watch this level again today, especially if there are some wild price swings on the NFP data.
Soybeans and hogs are loosely tied at the hip, as the Asian Swine Fever epidemic continues to impact the Chinese hog market. China is expected to lose 134 m hogs this year, which is about the size of the US herd for a season. Hog futures have had numerous limit up days over the past few weeks (most recently on Wednesday), as the story keeps getting worse. The funds have been aggressively adding to spec long positions as well. Soybeans are feeling the pain from this as well, trading to contract lows, as less hogs means less soymeal demand. Throw in a few other bearish obstacles for beans, such as disappointing export sales and the possibility of more bean acres being planted from corn in the US, due to the excessive rains and flooding keeping farmers from getting the corn in the ground (corn needs to get planted now, beans have more time to wait). On the topic of soybean exports, the market is struggling with figuring out the discrepancy of about 11 m bushels of beans from the export line on the USDA balance sheet, and what is projected to be sold this season. More clues on this, and a look at expectations for the 2019-2020 crops will come next Friday (May 10), in the WASDE report.
The wheat markets also had some fun yesterday, bouncing from all-time lows, in spite of the results from the winter wheat tours projecting very good crops. For Kansas, this season’s wheat yield is projected at 47.2 bpa, vs 37.0 bpa last year. The 5 year average is 40.2 bpa. Production is estimated at 306.5 m bushels. The bounce in prices is most likely a correction from being extremely over sold and trading at all time lows. Talk that the feed community is looking increasing the use of wheat in its feed also may be providing some support. Wheat prices are trading back down today, probably taking advantage of the bounce to respond to the data from the tour.
Corn continues to trade higher, as the already mentioned excessive rains continue to create havoc for the farmers. Not only are planting delays an issue, but the high water levels are impacting shipping. Yesterday afternoon, the CME declared Force Majeure at corn and soybean shipping stations along the Illinois and Mississippi Rivers. The corn planting delays / switch to bean acres story has been in overdrive the past few sessions. While this story usually is overdone, and doesn’t necessarily materialize, it hasn’t paid to fight the bid in corn prices. Also, the fund community, which posted a record short in last week’s COT report, continues to cover. They were able to book profits as corn prices were on there lows. Yesterday marked the 7th consecutive positive settle for corn. As prices move towards the upper end of the year’s trading range, how much of a profit is now being booked is in question.
Other commodities were interesting as well. Lumber was limit bid. Orang juice continues to get hammered, trading at over 10 year lows. Same story, strong harvest and softening demand. Copper traded at a 10 week low, concerned about global economic prospects going forward, as China, the US and European manufacturing indexes all downtick. Cotton was also hit hard, on concerns of stagnating demand while supplies build. Sugar had a small short covering bid. Coffee also had a short covering rally yesterday, as it has been hit pretty hard recently, also on large supply concerns.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 906.625 922.25 917.875
CN9 375 384.5 388.5
WN9 461 494.5 524.5
KWN9 439 479.875 520.75
MWN9 545.5 562.25 587.25
CLM9 60.92 56.71 60.79
GCM9 1301.2 1301.0 1267.3
LHM9 88.125 83.740 81.445
LCM9 119.925 118.420 116.200
KCN9 97.00 102.69 110.03
CCN9 2293 2310 2279
CTN9 76.79 76.52 79.61
SBN9 12.75 12.81 12.65
JON9 117.08 121.76 136.47
HGN9 291.41 282.25 280.47
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1201A
Chicago, IL 60604
Trean Group, LLC
312-604-6404
312-896-2012 (fax)