Good morning,
DXU0 97.415 +0.066 GCQ0 1793.5 -7.0 ESU0 3080.25 -10.00 CLQ0 39.40 +0.13
Welcome to the 2nd half of 2020. Not sure that we really had a first half of 2020, but we (and the economy) need to attempt to move forward. Equities, following a late surge yesterday afternoon, into quarter end, have tailed off a bit in the overnight trade. Some softer than expected economic data out of Europe, coupled with 2nd wave of the coronavirus concerns and talk of a potential new pandemic, tied to swine flu in China, puts the market a bit on the defensive. There should be some interesting moments for equities looking towards this half of the year. Continued virus stories, and the US election 4 months out will certainly create some volatility.
Gold prices (the lead August contract, GCQ0) stuck it’s nose above the $1800 level yesterday, and managed to settle just above. The safe haven status of gold, coupled with demand for gold stemming from lower real global interest rates keeps this market bid. Prices did trade up to $1807 in the overnight trade, but have since fell back below the $1800 border. All of the uncertainties surrounding economic re-openings and second wave risks should continue to keep a floor under gold prices.
Oil prices were firm yesterday, buoyed by decent data out of China and on the hopes that economic rebirth continues and translates to more oil and gas consumption. Yesterday afternoon, the API projected crude stocks fell by 8.16m barrels last week, when the market was expecting a drop of 1m barrels. This gave oil another leg higher in the late afternoon trade. The DOE releases its production and inventory figures later this morning. Yesterday, the EIA released final production numbers for April. The numbers were down, as was to be expected. The EIA also released data on how much oil products were supplied by refiners in April, which is used to gauge forward oil demand. Also in the report, US gasoline demand fell to the lowest level since January 1974, and jet fuel demand fell to the lowest level since December 1975. Also, OPEC+ members are doing a very good job of be compliant about honoring the production cuts agreement for June. It is believed they should be even better in July. There was some talk a few weeks ago about these production cuts being extended into August, but with global demand appearing to be on an uptick, this doesn’t seem likely at this time.
The grain markets received the long awaited planting intentions report from the USDA yesterday. The USDA surprised the market by projecting much less acres, for corn, and a smaller amount also for soybeans, than what was expected. The data can be found on the current data attachment. The market was surprised that more of the lost corn acres didn’t translate over to additional soybean acres. Corn and beans observed strong rallies yesterday. For corn, which had been observing a creeping higher short covering bid over the past few sessions, this report propelled prices higher. The size of the spec short in corn has been hanging at all time highs for over the past month, and now it appears like the party may be over. Wheat prices also traded higher, following corn. Wheat saw a reduced number for acreage as well, and saw short covering from the spec community, which had been carrying decent sized shorts in both Chicago and Kansas City wheat. In spite of this, the quarterly stocks report still showed large available supplies, and even with the reduced acreage, large carry out is expected. Grains now turn to a weather market, where above normal heat is in the extended forecast. There are a few rain events mixed in, but for markets that have seen very little, if any, weather premium built into the price, it may be time to see that.
Cotton prices also shot higher yesterday. USDA reported lower acres for cotton as well. In addition, the hot and dry conditions have been difficult on the cotton crops in Texas. Coffee prices continue to trade higher. A large spec short position is part of the buying. Frost concerns in parts of Brazil having an impact on the crop, coupled with heavy rains in other growing areas of Brazil delaying harvest. Continued demand concerns, which proved to be a catalyst for the coffee short, continue to plague the cocoa market. Cocoa demand has been decimated, and now 2nd wave talk and this new virus, tied to swine flu keeps a jittery market on edge. Sugar prices have been able to maintain its rally, following oil prices higher. Higher oil is believed to translate to increased ethanol demand, which incentivizes millers to produce ethanol instead of sugar.
Earlier today, the ADP Employment Index for the US, for June, was released. The headline figure came in below expectations, at 2.369m vs 2.9m expected, but the upward revision to last month was +3.065m vs a reading of -2.76m for May. Tomorrow, brings the Non-Farm payrolls report and Unemployment Rate for June. Following last month stellar (and shocking) report, the market is expecting NFP to be +3.09m, vs +2.509m last. The Unemployment Rate is expected to drop to 12.5% vs 13.3%. Still hard to fathom how an unemployment rate of 12.5% is a good number, but with almost 20m people still receiving unemployment benefits, I guess it is.
Technical Moving Averages:
Product 50 day 100 day 200 day
SQ0 854.25 869.25 912.00
CU0 327.75 345.50 371.25
WU0 512.25 528.00 535.25
KWU0 466.00 474.50 474.00
MWU0 525.75 535.00 551.25
SMQ0 289.4 297.0 305.3
BOQ0 27.29 27.88 30.18
CLQ0 32.64 35.67 45.17
GCQ0 1736.7 1685.1 1606.3
LHQ0 56.610 64.135 75.905
LCQ0 95.985 96.680 105.015
KCU0 103.85 110.00 114.15
CCU0 2344 2423 2482
CTZ0 58.52 59.48 63.70
SBV0 11.19 11.79 12.61
JOU0 121.65 114.85 112.45
HGQ0 247.40 244.30 257.40
HOQ0 104.79 118.04 151.78
XBQ0 104.07 108.84 140.88
NGQ0 1.974 2.012 2.171
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404