Good morning,
DXU0 96.665 +0.015 GCQ0 1734.9 +7.7 ESU0 3106.00 +44.00 CLN0 37.77 +0.65
The government appears determined to get the economy, and keep the economy on the corrective and growth path. As they keep throwing trillions of dollars at this thing. At some point, there will be a serious cost to all of this, but that is not today’s concern. Equities certainly agree with that, doing a complete about face yesterday, rallying from depressed levels on second wave scares. Equity prices were recovering on their own, then the announcement of the Fed buying corporate bonds as added stimulus, along with the additional program signed off on by President Trump, propelled prices upwards. Well, if the markets were concerned that Fed Chairman Powell might not have much to speak about when he gives his semi annual address to the Senate this morning, since he just had his post Fed meeting presser last week, yesterday’s corporate bond announcement changed that. On the economic front, the US does get the retail sales data from May. The most recent data has been stronger than what analysts have been forecasting, so it remains to be seen if retail sales follows suit.
Gold prices have once again recovered from the surprising sell-off to begin the week, when the world appeared in total “risk off” mode on second wave fears. Typically the safe haven characteristic of gold would have pushed prices higher, yet they were down sharply in the trade from Sunday night through yesterday. I suspect the reason for gold being lower was the same as it has been in the most recent corrections down to gold, being sold in an attempt to raise cash. Numerous times over the past 3 months, when additional cash was required, gold was the asset of choice to sell to raise it. Given the growing second wave concerns, and the continuation of stimulus to ease conditions to aid the economic recovery, gold has resumed its course of grinding higher.
Oil prices have recovered somewhat, following also falling victim to the second wave swoon observed in most markets from Sunday night through mid-day yesterday. OPEC+ is to meet this week, and while extension of the new production quotas that are in place through July is not a scheduled topic, it’s hard to think it will not be a subject on every member’s mind. The CLN0 contract expires this coming Monday (June 22). Given it is only 2 months removed from the historic (and unreal) cratering of oil futures to negative $40, going in to the last trading day of the May contract, it’s hard not to keep this on the radar. Clearly, the storage squeeze has eased up some, but it’s not completely gone. One difference this month is that today, OI on the July contracts stands at 126k. Conversely, for the past 2 months, the OI on the lead contract, on the Thursday and Friday ahead of LTD still stood at approximately 175k. This afternoon, API brings its weekly projection on US crude inventories for last week. Over the past couple of weeks, inventories have been building, even as production continued to tic down. The presumed increased demand as economies re-open is slowing working its way towards cutting into the supply overhang.
Yesterday afternoon brought the weekly update on crop conditions and progress from the USDA. Conditions, overall, had a slight downtick last week, and progress was at or ahead of the 5 year averages (recall last year’s flooding created some serious planting delays and late development of the crops, so comparison to that is mute). Corn and bean prices are higher today, as corn’s 4% decline, coupled with a hot and dry forecast over the next week, creates some concerns of stress, as corn is 95% emerged. Soybeans are benefitting from the weather as well, along with the continued buying out of China. The Brazilian real has renewed its move lower versus the dollar, but US beans remain substantially cheaper to China than Brazilian beans. Wheat prices are back to leaking lower, as US harvest progresses. The reports on the harvest continue to be very good yields, with good test weights and low protein. The large global wheat supply, as was projected by the USDA in last week’s WASDE, continues to weigh on prices. In Russia, even with the weather that have been observed this season, is expecting a decent crop.
Clearly, the second wave story that greeted the markets to begin the week had a tremendous impact on most commodity prices. Cocoa was again hit hard, as it was already facing demand concerns stemming from round 1 of COVID. A second round is thought to be devastating. Coffee prices also were hit. Extension, or renewal of shelter in place policies reduces coffee consumption, as more is consumed out of the home than in. Cotton prices also traded down on the demand story. In addition, more hot and dry weather hitting Texas will apply even more stress to cotton crops there. Sugar prices traded won, following oil. It has been well documented here how oil’s price movement influences cane millers’ choice to produce ethanol or sugar. A second wave creating more shelter in place situations, hence less driving, crushes gasoline usage. Thus more sugar is produced, building supplies.
Fed Chairman Powell addresses the Senate (virtually) at 9 AM CDT.
US May Retail Sales are expected +8.4% m/m vs -16.4% last month. Ex-Auto is expected +5.5% vs -17.2%.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN0 849.75 872.25 911.75
CN0 324.00 349.50 374.50
WN0 522.00 532.25 529.75
KWN0 471.25 473.25 465.50
MWN0 519.00 530.50 543.25
SMN0 290.0 298.4 301.7
BON0 26.92 28.14 30.17
CLN0 29.92 36.27 45.71
GCQ0 1726.0 1665.6 1594.1
LHQ0 57.830 67.460 77.840
LCQ0 94.415 98.260 105.435
KCU0 108.80 111.30 114.75
CCU0 2352 2477 2482
CTN0 56.71 60.02 63.47
SBV0 10.88 12.05 12.65
JON0 118.00 111.25 109.80
HGN0 239.00 243.25 256.90
HON0 98.79 120.87 154.01
XBN0 93.64 112.40 144.13
NGN0 1.981 1.997 2.174
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404