Commodity Corner: Morning Comments

Good morning,


DXM9  97.100  +0.101                  GCQ9  1358.4  +14.7                         ESM9  2888.50  -6.00                   CLN9  52.14  -0.14


Today is another potentially crazy day for the markets, for the US which will spin to the rest of the world quickly with today’s Retail sales report for May.  The US economic data to this point has been on the softer side of expectations, heating up the debate not IF the Federal Reserve should cut interest rates, but WHEN will they do it.  There have been some in the marketplace clamoring for the Fed to move next week, and fixed income markets have been trading defensively in case that should occur.  Soft retails sales data today will toss some gasoline on an already hot fire and will impact numerous markets.  The market expects May Retail Sales to be +0.6% m/m vs -0.2% last month.  The ex-Auto number is expected +0.4% vs -0.1% last.  The Fed meeting is next Tuesday and Wednesday, and then the Fed meets again July 30-31.    


It took a day, but gold finally responded to the oil tanker attacks from yesterday morning in the manner many had expected, to trade sharply higher.  Sometimes I am baffled by how long it takes the markets to respond to something that seems kind of obvious.  Attacks of 2 tankers is not some random event, and clearly a sign of ramped up geopolitical tensions.  Gold, being the safe haven, was up yesterday, but probably should have been much higher than it was.  Now it is, having taken out the psychological resistance point of $1350.0 (CLQ9) and the old high for this move of $1352.7 (from June 7).  With the aforementioned talk of the Fed possibly cutting rates next week (the market still expects the cut to come in July), and the negative impact on the dollar, gold should retain this bid.  The trade above the old high triggered some buy stops, along with the “algo” community receiving buy signals, which enhanced the move.  With gold trading around 1358 at the moment, (high is 1362.2), one would think the old high is a level of support on a pullback.


Oil, while rallying off a double bottom (CLN9) on the tankers attacks yesterday, has lost momentum to the upside.  The US blamed Iran for the attacks yesterday, but WTI, which had managed to trade above $53, couldn’t sustain the higher prices.  Overnight, the IEA reported that in 2020 oil supply will outweigh demand, due to increased production from non-OPEC countries, putting further pressure on the OPEC+ cartel.  The IEA did throw out the caveat that this projection assumes there is no major political shock, not exactly a safe assumption.  As mentioned yesterday, of late the trade in oil has been to rally into the weekends, probably due to weekend geopolitical risks, only to see prices come off in the middle of the week when production and inventory data is released.  We’ll see if today follows the same pattern, after the IEA’s report.


The grain markets continue the march higher, with the rain systems continuing to sweep across the country, and with more rain in the forecast for next week.  The corn story is now in the market, it’s just a matter of how many acres actually are able to be planted at this point.  The concern is that the same story could take place in the soybean market.  The later planting window was thought to give more time and opportunity for the soybeans, however the rains just won’t go away.  Corn led the way higher yesterday, after bean shad led the prior session.  Corn was bolstered by a reported sale of 175k tons to Mexico.  Funds have been piling in to long positions in corn since the WASDE, allegedly buying close to 100k contracts.  Futures open interest has risen by over 80k along the way.  It should be noted that this long position has been established in the upper 25% of the year’s trading range, so the location of the trade isn’t great, if there is something (hard to see what at this point) would dictate a major pullback in corn.  However, if new crop corn (CZ9) can work its way towards $5 (40 cents away), then the location won’t be an issue.  Soybeans saw funds buy close to 25k contracts yesterday, and open interest increased by over 20k yesterday.  Interestingly, in last Friday’s COT report, funds were reported to be spec short over 100k, which may no longer be the case, given the funds flow and open interest increase yesterday. An updated position report comes out this afternoon, which is taken from Tuesday, so the post WASDE trade should be reflected.  The rally in soybeans here has been driven by concerns of an inability to get all the beans planted due to weather and the thought in the market that bean prices had become to cheap, relative to corn.  Wheat, has been the tag along market of late, although it faces issues of its own with the rains in the US thought to be impacting protein levels.  Elsewhere, Canada and Australia continue to face hot, dry weather.  The Black Sea has received some beneficial rains of late, thought to help the crops.  Better crop sizes out of the Black Sea hurts the competitiveness of US wheat, which faces the disadvantage of the stronger dollar and a high flat price. 


Other commodity markets have been mixed of late, primarily driven by the supply/demand dynamics for each respective markets due to weather conditions.  The dollar market has had an impact as well, as most commodities are denominated in dollars.  The calls for a Fed cut sooner rather than later puts added pressure on the dollar, if US rates do in fact get moved down.  However, the general theme amongst all central banks is for monetary policy with lower rates, so relatively speaking, the US still has attractive rates, even with a rate cut.  Throw in the relative safety of investing in US assets vs the rest of the world, and its hard to see a huge decline in the dollar coming.  Any progress on the trade front will also have a direct effect on commodity prices.  At this point, it seems the earliest anything could happen would be at the G-20 meeting at month’s end, but even that appears unlikely.


Today’s US economic data should have large ramifications for the trade in most markets today.  Stay tuned and good luck!


Technical Moving Averages:

Product               50 day                100 day               200 day

SN9                      864.75                   896.5                     906.5

CN9                      384.25                   385.25                   388.25

WN9                    468.25                   479.5                     509.75

KWN9                  430.25                   453.5                     497.5

MWN9                535.25                   551.25                   574.0

CLN9                    60.69                     59.11                     59.98

GCQ9                   1300.2                   1310.8                   1282.6

LHQ9                   93.380                   88.530                   84.845

LCQ9                    110.710                 113.155                 113.140

KCN9                   94.56                     98.82                     106.76

CCN9                   2386                       2323                       2298

CTN9                   72.40                     74.02                     77.05

SBN9                   12.29                     12.58                     12.67

JON9                    104.20                   113.25                   127.30

HGN9                  279.05                   282.60                   279.05


Have a good day,




Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC