Good morning,

 

DXM9  96.970  0.000                       GCQ9  1338.9  +2.1                         ESM9  2891.00  +10.00                   CLN9  52.97  +1.83

 

The primary story today is the 2 tankers being attacked in the Gulf of Oman overnight.  Oil, naturally bounced on the news, recovering from a test of the lows yesterday afternoon to pushing back above the $53 level.  Gold also found a bid from this, but isn’t up as much as might have been expected.   Equities are trading better, still supported from the prospects of a lower interest rates in the US.  Grains are higher today, as another rain system sweeps across the middle of the country, causing more problems for the farmers still trying to plant. 

 

As mentioned, oil holds again against the lows yesterday, pushed down by another round of strong production and inventory data released during the session.  An extension down to the $50 level probably was in the cards, as oil posted its lowest settle in 5 months, before these attacks on the tankers occurred in the early European hours.  Oil shot up above the $53 level and is hovering around the level now.  Oil has displayed some similarity in the trade over the past few weeks.  It trades higher into the weekends, and comes off during the middle of the week, when production and inventory data are released.  OPEC+ is scheduled to meet June 24 -26, where a stern discussion about production levels is expected, especially in light of the recent sharp sell off to oil prices. 

 

Gold, the safe haven, might be on course for another test of the highs, around the $1350 level (CLN9).  Geopolitical tensions and an apparent easing of global monetary policy only enhances the appeal of gold.  The equity markets have a very nervous feel on this rally, and gold could be the proxy here for parking assets until a clearer investment picture comes into view. 

 

Grains are higher today, as the market continues to grapple with sharp reductions in production and carry out.  The sporadic rain systems that continue to pop up across the country keep these concerns on the tip of all tongues.  The rain is also a detriment to the winter wheat crops, now in harvest, as a reduction in protein levels can be expected.  Funds appear to be aggressively getting longer towards the highs of the move in corn, as the market attempts to determine exactly how many corn acres will be lost.  Funds were thought to have bought 50k contracts on Tuesday, and another 22k in yesterday’s trade.  Soybeans led the charge yesterday, greatly outperforming the rest of the complex.  Beans lagged on Tuesday following WASDE, as not many changes were made to the balance sheet and it is expected there will be more beans acres as a result of the corn situation.  The popular price ratio of soybeans to corn, which historically runs around 2.3 : 1 (beans : corn), dropped below 2 : 1 in Tuesday’s trade.  Yesterday’s outperformance of beans could in part be explained by a correction of this ratio.  It also could have been driven by short covering, as soybeans traded above the 50 day moving average.  These markets will remain focused on the weather, while waiting for the next big release from the USDA, the Planting Intentions report and Quarterly Stocks figures, scheduled to be released on June 28.

 

Looking at the  other soft commodities, cocoa prices traded higher yesterday, as producers and cocoa buyers reached an agreement on a floor price for trade in principal.  Cocoa is lower today, really not surprising as details of the agreement are mulled over.  Cotton prices were higher yesterday, and continue higher this morning.  News that Chinese mills are applying for exemptions from tariffs on US cotton improves demand prospects.  This, following data on Tuesday showing an expected large cotton harvest.  Coffee prices were up sharply yesterday, as a strengthening Brazilian Real (from expected cuts to US rates) slows producer selling.  Coffee finds itself a touch softer this morning, correcting a bit from yesterday’s rally. 

 

On the US economic front, yesterday’s softer than expected CPI data for May kept and even increased the expectations for the Fed to cut rates.  At this point, the market expects a reduction of 25 basis points to the short term lending rate to come at the July 31 meeting.  After yesterday’s data, the market is now putting the odds of a cut to come at next week’s meeting (June 18-19) at 25%.  More importance is now being placed on tomorrow’s Retail Sales data.  If these numbers are soft, the market will ratchet up even further expectations on a cut coming next week.         

 

Technical Moving Averages:

Product               50 day                100 day               200 day

SN9                      865.25                   897.0                     906.5

CN9                      383.0                     384.75                   388.0

WN9                    466.75                   479.25                   509.75

KWN9                  429.75                   454.0                     498.0

MWN9                534.75                   551.5                     574.0

CLN9                    60.90                     59.14                     60.05

GCQ9                   1299.3                   1310.4                   1282.1

LHQ9                   93.630                   88.505                   84.820

LCQ9                    110.940                 113.245                 113.170

KCN9                   94.50                     98.95                     106.85

CCN9                   2383                       2322                       2297

CTN9                   72.62                     74.12                     77.13

SBN9                   12.29                     12.59                     12.66

JON9                    104.60                   113.45                   127.55

HGN9                  279.55                   282.70                   279.15

 

Have a good day,

 

Mike