Good morning,
DXM0 97.540 -0.119 GCQ0 1712.2 -21.8 ESM0 3097.50 +20.50 CLN0 36.61 -0.20
Oil just loves to stay in the spotlight, with prices continuing to shoot higher yesterday, as the OPEC+ meeting was believed to be moved up to tomorrow, and an extension to the agreed upon additional production cuts was allegedly agreed upon. Also fanning the flames, the API came out projecting WTI crude inventories declined by 483k barrels last week, when the expectation was for an increase of 3m barrels. WTI futures traded above $38 in the overnight trade, while Brent crude traded above $40. During the European trade, the headline hit that this OPEC+ meeting may not take place, due to a dispute amongst the key members about some members cheating on the new production quota levels. Oil prices dropped back down on this, with WTI futures now back in the mid $36’s.
Tropical Storm/Hurricane Cristobal was also supporting oil prices yesterday, as it is currently located in the Bay of Campeche, and thought to hit US land come the weekend. Cristobal also was given credit for rice futures moving limit bid, up 5.5%, and trading at an 11 year high. There appears to be a squeeze taking place on the front July rice futures contract, as the spread against the September (2ns month) spiked up to $6.37, which is up $4.18 from last week.
Cocoa futures have been hit hard of late, and saw another steep decline yesterday. Lackluster demand is driving the price down. An example of the poor demand, Dufry AG, an operator of duty free shops, reported sales fell by 94% in April, and expects to see a similar result for May. The travel industry has been decimated by coronavirus, has seen chocolate sales at airports suffer. Technically, cocoa futures also received a sell signal when futures prices were unable to take out some key resistance levels.
Copper futures have been grinding higher, along with the equity market. The belief was that copper prices were responding to the expectations for a strong return from the global economy, using China as an example. While this is part of the story, it was also revealed in the latest COT data that managed money is at it’s lowest point of being net short since mid-January, just before the pandemic really gained traction. So there has been aggressive short covering taking place on this rally as well.
Gold is coming off, as the risk on movement continues. The overnight low, $1709, is basically the 50 day moving average for GCQ0. On a retest of this level, if it gets taken out, the area around $1700 should be support. I doubt many feel all is completely right with the world just yet!
A quick look at the grains. Soybeans had a bid yesterday, following another reported purchase by China. On Monday, the talk in the market was that China would not be buying US ag products, specifically soybeans and hogs, in response to the US sanctions imposed over Hong Kong. Clearly, that notion fell away quickly, although many in the market doubted it in the first place, since soybeans and hogs are the 2 products China needs the most. In addition, US soybeans priced in August and beyond are currently cheaper than Brazil’s offering. Wheat futures were lower yesterday, as more rain moving into wheat growing areas, both domestically and internationally, are beneficial. Also, yesterday’s wheat purchase by Egypt saw the Ukraine sell 120mt. US prices were not close to competitive, and Russia, while making offers, was held back by export limitations as the season comes to a close. The corn market traded in a narrow range yesterday, as the favorable forecasts for the growing season do nothing to dispel the notion of a very large crop, but the continuing rally in the energy complex and the record size spec short keeps support below the market.
A quick peek into the economic world. This is payrolls week, which means Wednesday brings the ADP Employment Index for May. Today’s reading came in at -2.760m (jobs lost), versus an expected drop of 9m. Last month, the number was -19.557m. So, actually a constructive number, if you can ever call a report that shows losing 2.76m jobs being a “strong” number. The market expects to see nonfarm payrolls down 8m on Friday, from being down 20.537m in May. The Unemployment Rate is expected to print 19.5%, vs 14.7% in May. Given today’s ADP report, you can probably expect to see some “upward” revisions to the payroll estimates, and a lowering of unemployment rate estimates. Tomorrow’s initial jobless claims and continuing claims data will probably give a more up to date picture on employment.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN0 852.50 880.50 914.00
CN0 327.50 356.00 377.50
WN0 530.50 537.75 529.00
KWN0 477.50 478.00 464.75
MWN0 522.75 555.25 544.50
SMN0 295.4 300.3 306.6
BON0 26.74 28.72 30.26
CLN0 28.15 38.02 46.38
GCQ0 1709.8 1652.3 1586.3
LHQ0 59.825 70.200 79.120
LCQ0 93.660 100.075 105.745
KCN0 111.85 111.75 113.40
CCN0 2352 2525 2495
CTN0 55.09 61.14 63.53
SBN0 10.50 12.12 12.51
JON0 116.45 109.20 109.10
HGN0 232.10 245.75 257.05
HON0 97.95 127.64 157.07
XBN0 85.04 118.20 146.31
NGN0 2.006 2.040 2.199
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404