Good morning,

 

DXU9  96.920  -0.145                       GCQ9  1341.3  -3.2                         ESM9  2894.50  +4.00                   CLN9  52.05  -0.46

 

I guess this could be called the calm before the storm, with the biggest item out there for the markets to deal with is Wednesday’s monetary policy decision from the Federal Reserve.   While the data over the past 10 days brought into question if conditions warranted the Fed being very aggressive and cutting short term interest rate sat this meeting were calmed a bit on Friday, when the retail sales data was better than expected.  The market still expects the Fed’s  next move to be a cut to rates, but the move is expected to come at the July meeting, and not this week.  The dollar has firmed up on the delayed timing for the cut, which is putting pressure on some commodity prices.  Not phased by the renewed dollar strength are grain prices, which continue to march higher, as the rains persist across the country, diminishing the chances for any late corn plantings, causing concern about bean plantings, and potentially bringing damage to wheat crops in the early stages of harvest.  Oil and gold are both lower, as the heightened tensions surrounding the attacks on the 2 tankers last week appears to have eased.  The dollar strength is hitting gold, and the possibility of a global supply glut pressures oil.     

 

The grains are the main story today, as sever storms remain in the forecast for a good portion of this week, causing flooding across the grain belt.  Not only is planting delayed as a result, but transportation as well.  Funds are actively involved on this rally, as Friday’s COT report from the CFTC showed adding of length in corn positions, while covering shorts in soybeans and wheat.  While wheat is supported from risks of crop damage by all the severe storms, also aiding US prices are reports that Russian wheat exports are down 13% as of June 11.  Soybeans and corn gapped higher on the open last evening, as the storms and flooding keeps production concerns in full view.  The corn story, while known to be bad, keeps getting worse with the rains.  Soybeans are now facing the possibility of a similar situation as rain continues.  In the overnight trade, soybeans took out the key 200 day Moving Average resistance area.  This is critical, as Friday’s COT report showed the funds still remain spec short in soybeans.  Trading above the 200 day MA level probably triggered “buy” stops, along with the “algo” community getting buy signals, exacerbating the move higher.  A fresh look at crop progress and conditions comes out this afternoon. 

 

The other soft commodities were hit on Friday, predominantly on the reversal in the dollar higher on the better than expected retails sales data.  Prior to the release of this data, the market had spent the majority of the week increasing the chances that the Fed would reduce short term interest rates at this week’s meeting, based upon the recent string of soft economic data.  While these expectations were growing, the dollar was getting hit.   When the dollar reversed course Friday, the commodities denominated in dollars traded lower.  It was also noted that the depreciation of the Brazilian real vs the dollar stepped up South American producer selling activity, as they benefit when their currency depreciates vs the US.  Gold also was hit on the dollar correction, as that, along with the reduction of safe haven necessity.  Oil trading down today, suggesting the tanker attacks may not be a huge issue, as there was no disruption to supply, also reduces the safety status of gold. 

 

Speaking of oil, the tendency of late has been to see prices trade down mid-week, as updated reports on production and inventories comes out.  The next OPEC+ meeting begins next week.  It is widely expected the main topic of conversation will be a means of bringing stability to prices.  It is also expected that the group will continue to attempt to control the amount of oil that gets released to the market.  While the geopolitical landscape still carries risks to higher prices, the potential abundant supply story keeps pressure on prices.

 

With all things being equal, not a very likely occurrence of late, the markets should be choppy in relatively confined ranges ahead of Wednesday’s FOMC result and press conference.    

    

Technical Moving Averages:

Product               50 day                100 day               200 day

SN9                      864.25                   896.25                   906.5

CN9                      386.0                     385.75                   388.75

WN9                    469.5                     479.5                     509.75

KWN9                  431.0                     453.0                     497.0

MWN9                535.25                   551.75                   573.75

CLN9                    60.49                     59.09                     59.92

GCQ9                   1301.0                   1311.3                   1283.2

LHQ9                   93.040                   88.520                   84.860

LCQ9                    110.480                 113.070                 113.115

KCN9                   94.52                     98.69                     106.69

CCN9                   2389                       2325                       2299

CTN9                   72.17                     73.92                     76.95

SBN9                   12.29                     12.58                     12.67

JON9                    103.85                   113.10                   127.05

HGN9                  278.40                   282.55                   279.00

 

Have a good day,

 

Mike