Good morning,
DXU0 92.885 -0.124 GCZ0 1995.8 +29.0 ESU0 3257.50 +8.75 CLU0 40.28 +0.36
Month end is upon the markets today, and many products are putting in new highs to close out July. Equities spiked in the late afternoon yesterday, driven by blowout earnings reports from the likes of Facebook and the announced stock split from Apple. Gold prices have resumed the march higher, more on this below. Oil prices appear to have survived a flush below $40 in yesterday’s trade and have popped back above the level a tad this morning. The dollar has resumed it’s plummet lower, as US yields continue to grind lower. The dollar weakness is proving supportive for many commodities.
The lead futures contract for gold (December: GCZ0), shot through the very important level of $2000, 1 minute before the opening of the European markets this morning. It spiked to $2005.4, it what looks like a BUY STOP type of trade, when you look at the intraday chart. The market just as quickly rotated back down below $2000, and the high trade over the rest of the morning has been $1999.0. Nonetheless, $2000 was traded through, and given how quickly the market shot through and then back below, a retest of that 2005.4 high can be expected at some point. The weaker dollar of late, low interest rates, and economic fall-off concerns all have pushed gold to post its best month in 8 years. At the moment, spot gold is up approximately 11%. Not to be outdone, silver has also had a monster month, and will have it’s largest monthly gain since 1979.
Oil prices observed a fairly sharp sell-off yesterday, driven by the poor economic data released, the second wave fears spreading across the US (which will quickly put an end to any growing demand for oil and its products) and in a round of profit taking before OPEC+ begins to loosen up its production curbs, beginning in August. OPEC+ is preparing to produce an additional 1.5m barrels a day in August, as they ease back on the steep production cuts put in place in May, to shore up the flailing oil market. Going forward, oil (along with many commodities) will have a close eye on coronavirus resurgence, as it will most likely lead to a direct hit to demand.
Wheat prices are poised to have the largest monthly gain in 1 year, as improving prospects for US exports, coupled with declining global crop forecasts are proving supportive. Wheat export sales were better than expected yesterday, and there is a growing belief that US wheat will become more in demand, as stockpiles globally are reduced. Wheat is up approximately 8.5% this month, which is the biggest gain since May of 2019. Furthermore, numerous analysts are reducing acreage estimates for spring wheat, which will reduce some of the available higher quality wheat in the US. Corn is not sharing the same story. Despite monster purchases from China (where there is a real squeeze on domestic corn prices there), corn prices are poised to be lower for the month. Yesterday, China purchased a 1 day record of 1.937m tons of US corn. China has been selling large amounts of corn out of its domestic reserve, as Chinese prices have spiked above $9, in an effort to curb the squeeze. It would appear China is then replenishing it’s stock with the much cheaper US corn. Not to mention, this helps with the Phase 1 agreements as well. While the beginning of July had concerns about hot and dry conditions having a major impact on corn during the pollination month, this never materialized. Instead, very friendly weather conditions were observed, causing analysts to increase yield estimates for this season’s corn (for beans too, although August is the big month for them). Even with increased purchasing out of China, carryout is most likely expected to be well above 2B bushels. Soybeans are sort of a side show at the moment, torn between decent demand out of China as US remains much cheaper than Brazil, and an expected large harvest. Weather will be a key factor here, along with US/China relations, which have yet to really be a factor, in spite of the rising tensions.
The coffee market is in the midst of a strong short covering rally, partially led by the sagging dollar. A rally in the domestic currency gives less incentives to producers to bring product to the market, as it is denominated in dollars. Also feeding the coffee rally is the weather, temperatures have been hotter and drier than normal. A cold front is now approaching early next week, which will raise frost concerns as well. Cocoa prices continue to also have a short covering grind higher, as demand begins to pick up with European countries re-opening. Sugar is strong as well. Oil prices comfortably sitting above $40 incentivizes cane producers to make ethanol as opposed to sugar. There are some concerns about weather having an impact on next season’s crop. All in all, short positions are feeling a bit uncomfortable. Keep your eye on the 12.50 price. It is the 200 day moving average, and if it is taken out, more buying could be triggered.
With today being month end, the price action in many markets can be influenced by profit taking , or window dressing trades. Be aware of that as we work through the session.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX0 878.50 868.50 907.50
CZ0 339.75 343.75 370.00
WU0 512.75 523.50 536.25
KWU0 450.25 467.00 473.25
MWU0 522.50 528.00 545.00
SMZ0 296.0 298.3 306.1
BOZ0 29.06 28.23 30.49
CLU0 39.06 34.56 44.13
GCZ0 1806.2 1742.4 1649.9
LHV0 50.755 53.595 63.455
LCV0 101.935 99.225 107.130
KCU0 101.25 107.95 113.55
CCU0 2274 2305 2458
CTZ0 60.67 58.58 63.52
SBV0 11.78 11.28 12.50
JOU0 125.30 119.05 113.65
HGU0 269.80 250.65 260.35
HOU0 119.89 113.51 146.98
XBU0 119.12 102.77 135.05
NGU0 1.849 1.996 2.124
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
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Chicago, IL 60604
Trean Group, LLC
312-604-6404