Good morning,
DXU0 93.490 +0.058 GCQ0 1942.8 -10.6 ESU0 3226.25 -26.25 CLU0 40.63 -0.64
Since we last checked in, the dollar traded down to an over 2 year low, gold has spiked up to near $2000, equities continue the march higher and oil is comfortably nestled above the $40 barrier. Market expectations of a very accommodative Federal Reserve, confirmed yesterday following the Fed’s meeting and press conference. The sagging dollar has been supportive for commodities denominated in dollars, as it makes them much more attractively priced in the export arena.
The markets today are in the midst of a corrective trade, following yesterday’s reaction to the Fed, which saw stocks push higher, gold make new highs and the dollar continue lower. Today, equities are down, gold off a touch and the dollar slightly firmer. As long as the Fed intends to be very accommodative towards the economic recovery, these markets should resume the recent trajectories.
Oil prices are rotating down today, as oil producing countries attempt to gauge the impact of a potential demand regression, due to second wave concerns at a time when OPEC+ is about to lighten up on its production curbs with the calendar turning to August. As witnessed this spring, a virus driven hit to demand can lead to stockpiles building quickly, and storage capacity could again become an issue. Especially as production begins to ramp up some. The difference this time may be that Saudi Arabia and Russia don’t find themselves in a severe disagreement about production, so conditions and prices may not spin out of control like April.
Gold prices should continue to respond to stimulus measures being put in place globally, while also serving as a safe haven asset with countries again growing concerned about economic regression form the pandemic. With real rates continuing to move lower, the value and attractiveness of gold increases.
The grain markets are caught in a dilemma of its own. The weather concerns of early July facing the corn market didn’t play out as feared. Rather, very friendly weather greeted the corn crops, as they worked through pollination. Many yield estimates are being revised upwards, and the potential for a large crop and carryout is increasing. Supporting the corn market is China, which would appear to be facing a type of demand squeeze. Domestic prices in China are through the roof, and the government attempts to contain the price escalation haven’t worked, as the auctions held from it’s stockpiles have been met with huge demand. Soybeans, both US and Brazil’s have seen huge demand out of China as well. China has been very aggressive in sourcing essential commodities, out of fear that the growing second wave could lead to transportation disruptions which will make things hard to obtain. The weather in July has been good for soybean development, and yield estimates are being raised here as well. The key weather for beans will come in August, where similar weather to July is expected. The wheat market has been in a very volatile state of late. Weather related diminishing supplies has been supportive for US wheat prices, as there may be a window to capture market share. There has been talk recently of China looking to acquire US wheat. Winter wheat harvest is almost complete, and prices tend to bounce from lower levels coming out of harvest. The recent decline in the dollar has also helped US wheat prices in the global export arena. However, Egypt’s most recent purchase tender still showed the US, and Europe, which is facing a much smaller crop this season, are too high priced compared to the Black Sea.
The Brazilian real’s recent recovery against the dollar has created a short covering rally in the coffee market. Funds had positioned short in coffee, as the global pandemic created a major hit to demand. There were some frost concerns in Brazil that provided temporary upticks to prices, but the concerns never truly materialized. Thus funds were able to maintain the shorts. Cocoa prices are also recovering from very low prices, aided by the softer dollar. Prices were pushed to multi year lows, also driven by demand shortfalls from this pandemic. The trade is a cautious move upwards though, as more concerns about the virus return. Sugar prices continue to follow the oil market, thus staging a sold recovery from very depressed prices. There have been some weather related concerns about the next season’s crop being short, thus creating reduced supply. Live cattle and lean hogs futures have been in a choppy trade, but grinding higher in the process. Firming prices in the cash market are proving to be supportive for futures. China continues to have strong demand for US hogs, which is also helping with the push. The recent cattle of feed data has also been keeping an underlying bid in the cattle market.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX0 877.75 868.25 908.00
CZ0 339.75 344.25 370.50
WU0 512.25 523.50 536.25
KWU0 450.50 467.25 473.25
MWU0 522.75 528.25 545.25
SMZ0 295.9 298.4 306.3
BOZ0 29.01 28.22 30.49
CLU0 38.92 34.50 44.19
GCQ0 1782.1 1727.6 1637.2
LHV0 50.815 53.785 63.595
LCV0 101.825 99.190 107.160
KCU0 101.10 107.90 113.50
CCU0 2275 2307 2459
CTZ0 60.59 58.57 63.53
SBV0 11.75 11.28 12.51
JOU0 125.40 118.80 113.65
HGU0 268.85 250.25 260.20
HOU0 119.61 113.52 147.28
XBU0 118.84 102.71 135.28
NGU0 1.855 1.998 2.127
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404