Good morning,
DXU0 92.780 -0.216 GCZ0 1959.0 +6.5 ESU0 3474.50 -5.75 CLV0 43.19 -0.20
**This commentary was written prior to Fed Chairman Powell’s comments, which the markets interpreted as dovish. The dollar was hit, gold caught a bid, along with fixed income markets.**
Hurricane Laura is the lead story across almost every media outlet today, as she makes her way inland US overnight. The storm, while carrying very strong winds, as I saw Jim Cantore’s cap get blown away as he was reporting this morning, may not be directly in line with major oil and gas refineries, but can still create some damage. This is probably why oil futures are a touch softer today. Laura is expected to take a turn east, and work her way across the Ohio valley and into the Atlantic and Northeast parts of the country. Cotton futures have been strong the past couple of sessions ahead of this.
Aside from the hurricane, the markets are waiting the speech from Federal reserve Chairman Powell today, at the Fed’s Jackson Hole Economic Symposium. It is all virtual, so he’ll probably be in his basement delivering the speech, but the market will be paying attention to any clues he can give, regarding economic prospects or timing of recovery. It’s a fair assumption that Chairman Powell is in the dark as much as everyone else about when a corner may be turned with the pandemic, but perhaps he shares opinions or what if scenarios for when things turn around.
Equities made another new high yesterday, and have come off a bit in the overnight trade ahead of Chairman Powell. Gold prices are a touch softer today, after a decent bounce yesterday following a sell-off as there was a slight uptick in US interest rates. Rates recovered (softened) in yesterday’s trade and gold caught a bid. Some of yesterday’s gold bid is being attributed to continued US/China tensions, as China fired four missiles into disputed waters on the South China Sea. Any clues regarding Fed policy today should carry an impact on the gold trade.
The supply and demand pendulum continues to swing in the grain markets. Analysts have been shaving yields off this year’s crop ever since the USDA last gave it’s projections on Aug 12. The derecho and drought like conditions that have been across a major portion of the growing areas is the reason for this. Perhaps Laura can stretch out a bit to the west, and bring some needed precipitation to growing areas, but it may be too little too late, especially for corn. Beans still have hope. There are some cooler temperatures in the extended forecast, so relief from stress could be out there. The demand side is dominated by China. China appears to be on pace to buy about 40m tons of beans in 2020, which is 10% more than the record purchased in 2016, and 25% more than purchased in 2017, which is the baseline for Phase 1. Brazilian supplies for this year are basically exhausted, leaving the door wide open for the US. Brazil is expected to bring a record crop next year, and forward sales are already being made, fairly aggressively with where the real is, on this crop. China, out of fears of the pandemic lasting longer than anyone cares to think about, has been in commodity grab-a-thon mode. Stocking up, before any shipping disruptions, created by the virus, can take effect. China has been aggressively buying corn as well. Domestic corn prices have skyrocketed in China, so the government has been selling from inventory and then replacing with US corn. Wheat prices are also catching a bid on the possibility of this China buying spreading into the wheat complex. While Russia remains the largest exporter of wheat, exhibited again the other day with a huge sale to Egypt (at prices approx. $7 higher than the prior sale), the could be a window for the US, with reduced crop sizes coming out of Europe, Australia and Argentina, caused by the weather. With the mentioned high price of domestic corn in China, there is much talk about increasing the ration of wheat into the feed mix for the livestock in China. On a technical note for wheat, yesterday’s trade took the lead contract above the 200 day moving average, which had been acting as resistance for the contract. This move through the level brought some short covering and new buying into the market. For today’s trade, the level should act as support (542.50 (WZ0)).
A quick look at a few of the other commodity markets. Cotton, as already mentioned, has been strong the past few sessions, as Laura is thought to bring deadly storm surges, flash floods and destructive winds to the cotton fields. This can have varying effects on yields and fiber quality, depending upon how far developed the crops are. Cotton prices are a touch softer this morning, so perhaps the damage is not as bas as feared. Lumber prices were back in limit up mode yesterday, as the combination of very strong housing data of late and the expected damage caused by Laura put a bid into prices. This market will be waiting to get reports on the extent of any damage as well. Coffee prices have been moving higher, as yesterday was the 19th consecutive day that warehouses reported a smaller amount of available supply. Inventories are at the lowest level since February of 2017. Traders are taking this as a sign of increasing demand. The recent uptick in the Brazilian real also supports prices, as producers are less inclined to sell when the domestic currency rises. Sugar prices are coming off the recent highs, as Brazil and India are expected to have decent growing seasons, helping with the forward supply concerns.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX0 890.50 874.00 900.50
CZ0 337.75 338.00 363.25
WZ0 519.00 526.25 542.50
KWZ0 449.75 469.25 481.75
MWZ0 526.25 534.25 551.25
SMZ0 296.3 296.2 303.8
BOZ0 30.16 28.98 30.40
CLV0 41.27 37.00 43.25
GCZ0 1896.2 1816.7 1693.6
LHV0 50.735 52.160 61.135
LCV0 105.120 101.765 106.555
KCZ0 109.85 110.05 116.40
CCZ0 2309 2316 2417
CTZ0 62.48 60.05 63.19
SBV0 12.25 11.58 12.50
JOX0 123.75 121.85 116.30
HGU0 284.55 262.75 262.45
HOV0 125.69 117.42 142.78
XBV0 116.19 103.02 121.32
NGV0 2.093 2.143 2.184
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404