Good morning,
DXM0 96.910 -0.012 GCQ0 1696.8 +13.8 ESM0 3202.50 +15.75 CLN0 39.27 -0.28
Risk on! On the heels of Friday’s shocking employment data, which saw Non-Farm Payrolls, INCREASE by 2.5m, versus negative estimates, and the Unemployment Rate print 13.3%, versus expectations of close to 20%, asset classes exploded, led by equities. Oil and commodities certainly were on board for the ride as well. Gold was decimated, as the trade exited the safe haven storage and fixed income futures were hit hard, as the appearance of a rapidly recovering domestic economy keeps the Fed from cutting rates any further. This week, the Federal Reserve meets to discuss monetary policy. While no change to current policy is expected, Chairman Powell’s press conference will again be closely scrutinized. Not only for up to date thoughts on all aspects of COVID-19 and the economy, but also on more recent developments such as economic consequences from the recent social justice protests and this surprising economic data.
As mentioned, gold was crushed on Friday, dropping over $50 at its lows, to $1671.7. It has bounced in the overnight trade, sticking tis nose above $1700, and hanging around this level at the moment. While the short term euphoria for other asset classes persists, longer term, gold should still find underlying support.
Oil prices did a quick tour above $40 overnight. Driven up on the OPEC+ agreement to extend the current agreed upon production cut quotas further, and the potential negative impact of Cristobal, hitting the US shores near the gulf oil areas. Oil has rotated off the highs over the past few hours, as these extension are only through the month of July, at this time, Saudi Arabia announced. The Russian Oil Minister, is on the tapes now, saying that any extension of these production cut quotas will be determined by demand and inventories. The main concern for OPEC+ is that the global oil market rebalances. Russia is very concerned about US production, which has had a significant drop in production over the past couple of months, but there is some talk of production ramping back up. Russia is not willing to do its part to help the global supply/demand imbalance, at the risk of losing market share to other oil producing countries that may not by exhibiting the same sentiment.
The grain markets also got caught in the push up on Friday. Soybeans continue the strong move, as the reported purchases by China continues. The recent improvement in the value of the Brazilian real has made US prices cheaper for China than Brazil can offer. In addition, Brazilian producers are not as eager to sell with the increase in the domestic currency. Corn prices also continue to push higher from the lows, aided by strong oil prices, talk of money managers looking to get diversify investments into the “ags” complex and continued short covering from the record spec short positioning of the funds. The rally was somewhat halted on Friday on the stronger dollar, following the employment data. Wheat prices, which had been rallying on global weather concerns in producing countries, came off on Friday, as Cristobal is expected to bring beneficia rains to the US wheat areas. Thursday brings the latest supply and demand picture form the USDA in the WASDE report. A modest downtick to corn production is expected, with a modest uptick in soybean production. Keep in mind, very good crop yields are expected for both. On the inventory front, stocks are expected to build for the coming season. More on this report throughout the week. Estimates for this data can be found on the current data attachment.
Coffee prices also rose with most commodities on Friday. A couple of factors, in addition to the overall euphoria, helped push prices up. The effects of COVID-19 restrictions could potentially hurt the Brazilian coffee harvest, which is underway. Recent heavy rains have accelerated the coffee development, leaving the coffee beans ready for harvesting ahead of schedule. The inability of producers to get enough labor for the harvest, due to pandemic restrictions, brings some concerns about the size of the crop. The USDA attache is projecting a record coffee harvest for Brazil, which, as reported by the CFTC last Friday, has led to funds establishing a decent sized spec short position. Thus some short covering was impacting the coffee trade higher as well. Both the Arabica and Robusta contracts saw increases to the overall short positioning reported on Friday. Sugar prices also continue to move higher, following the oil market. Concerns continue to grow about the supply of sugar as oil prices continue to climb.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN0 851.25 877.50 913.25
CN0 326.00 353.75 376.50
WN0 528.00 536.25 529.25
KWN0 475.50 476.75 465.25
MWN0 521.50 533.75 544.00
SMN0 293.4 299.6 306.2
BON0 26.81 28.51 30.23
CLN0 28.75 37.43 46.16
GCQ0 1714.6 1656.3 1588.9
LHQ0 58.810 69.305 78.695
LCQ0 93.705 99.475 105.655
KCN0 110.25 111.10 113.35
CCN0 2360 2519 2498
CTN0 55.57 60.76 63.50
SBN0 10.55 12.06 12.49
JON0 117.25 109.95 109.40
HGN0 234.20 244.75 256.85
HON0 97.88 125.22 156.01
XBN0 88.19 116.22 145.59
NGN0 1.998 2.025 2.191
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404