Good morning,
DXM9 97.115 -0.005 GCM9 1299.7 -2.1 ESM9 2828.00 +21.00 CLM9 61.74 +0.70
The markets appear to be catching their collective breath this morning, as most are recovering from being decimated in yesterday’s price action. Trade remains the main topic of conversation / concern for the markets, as the saber rattling from the weekend carried through into yesterday. The markets have now had a chance to digest and attempt to price the impacts of the tariffs from both the US and China. Bottom line is that the longer this trade battle continues, the potentially bigger negative impact for the global economy. This was reflected yesterday, as most asset classes took it on the chin.
Aside from the trade story, WTI oil had a very interesting trade yesterday, having almost a $3 range on the day. Oil came in with a bid, and extended it on the news of the Saudi tankers being attacked on Sunday. Reports of Russian production coming in below the agreed upon levels by OPEC+ also boosted prices. However, oil fell to the same fate as most markets, trading down sharply as the breakdown in trade talks was viewed as an impediment on the economy, and on potential oil demand. Some late selling came into the space, as technically, yesterday was an outside day down, with the higher high from Friday, lower low and settle. A major Wall Street bank was projecting a possible trade down to $50, based upon signals generated from this close. In the overnight trade, oil traded down right to the 200 day moving average, held this level, and then proceeded to bounce over $1, assisted by a story of a reported drone attack on pump stations in Saudi Arabia. Not to be outdone, Brent crude also traded lower initially, taking out the psychologically important $70 level, only to bounce over $1 on this news as well. All of the tension in the Middle East, the OPEC monthly oil report being released this morning and with US weekly production figures coming out, oil should see a very choppy trade.
The US grain and oilseed markets, along with the livestock, took a direct hit to the bow on the announced tariffs from the announced US tariffs, and the retaliatory ones from China, where US agricultural products were specifically pointed out as a prime target. All of the “ags” products traded down to multi year lows. Soybeans were trading at over a 10 year low. Funds, carrying very large speculative short positions, piled on to the carnage. Corn open interest increased by over 23k on the decline, soybeans by almost 5k. The wheat complex managed to find support and proceeded to deliver a double digit bounce to prices. Support for wheat came from a very good export inspection number, along with US prices being at a substantial discount to European wheat from the recent price declines. This wheat bounce managed to serve as a bandage for corn and soybeans, and those markets were able to put in a short term bottom. Corn and beans have a decent bounce to prices here in the overnight trade, as yesterday afternoon’s crop progress reports showed planting and development well behind the 5 year averages (breakdown of crop conditions and progress are on the attachment). The market was expecting to see lower numbers here, but the magnitude, coupled with the oversold condition of the market perhaps helped some short positions think about booking some profits. As mentioned, lean hogs were limit down yesterday, as the trade tensions can have a direct effect on the amount of pigs sold to China. One point to keep in mind is that the swine fever epidemic is bad, and eventually China may have to look back towards the US. Live cattle was almost limit down as well, on demand concerns.
The other soft commodity markets, for the most part, experienced the same fate, trading sharply lower as the apparent moving further apart between the US and China doesn’t bode well for the overall global economy, hence less demand. Cotton and lumber also had limit down days yesterday. Cotton traded at the lowest prices since September of 2016. The exception to the commodity onslaught was frozen orange juice, which closed higher on the day. It should be reminded that orange juice has been decimated of late, as the combination of an expected very good Florida harvest and health conscious consumers (less sugar) have pushed prices down to levels not seen in a long time. Yesterday can be viewed as a corrective bounce in an extremely oversold market. The rest of the commodities are up in the overnight trade, in a corrective mode from yesterday’s flush lower in prices. Aside from the supply/demand stories surrounding each market, and sharp moves in the dollar, coming from issues on trade or the Middle East, can have a big impact on prices.
Gold had a very interesting trade yesterday as well. Yesterday morning, gold was lower, even with all of the trade banter and the reports of the tanker attacks in Saudi Arabia. It almost seemed like gold was ignoring the stories out there. Then, as oil kept moving upwards and global equities were getting pummeled, gold caught a bid and managed to trade up and through the key $1300 level. With stocks looking like a possible short term bottom may have been established yesterday, gold has rotated back down, below the same $1300 level. Copper also was hit hard yesterday, not that surprising, given the equity trade and overall views of stagnating economies. Copper does have a slight bid this morning, most likely tied to the direction of the stock market.
The US weather continues to show an opportune window for farmers to get in the fields and get crops planted. It can be expected they will be going full tilt, as more rain systems appear towards the end of the extended outlook. Talk remains that the weather this spring will lead to lost acres in corn, and possible even in soybeans, based upon how far behind yesterday’s figures showed the crops to be and more rain projected longer term.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 891.25 913.5 914.5
CN9 371.5 381.875 387.375
WN9 455.0 487.125 520.125
KWN9 430.375 470.375 514.75
MWN9 539.5 557.0 584.0
CLM9 61.52 57.34 60.69
GCM9 1295.3 1302.8 1268.4
LHM9 90.080 84.175 82.090
LCM9 118.805 118.145 116.175
KCN9 95.32 101.35 108.90
CCN9 2297 2317 2278
CTN9 76.38 75.82 79.04
SBN9 12.56 12.73 12.64
JON9 113.37 118.50 133.91
HGN9 289.10 282.40 280.25
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1201A
Chicago, IL 60604
Trean Group, LLC
312-604-6404
312-896-2012 (fax)