Good morning,
DXU9 95.795 +0.147 GCQ9 1408.6 -10.1 ESU9 2934.75 +12.75 CLQ9 58.98 +1.15
Risk back on appears to be in order for today, as equities recover from yesterday’s sell-off and gold is correcting lower. The primary catalyst would be comments from Powell and Bullard of the Fed, basically saying that a moderate easing (read 25 bp cut) of monetary policy appears to be in order for the moment. The market has been bracing itself for a much more aggressive easing campaign to come. Yesterday’s comments allowed the dollar’s freefall to come to an end for the moment, thus putting pressure on gold. Equities found support from the notion that the Fed is willing to do what is necessary going forward to keep the economy stimulated. Oil prices had a late surge yesterday afternoon, carrying in to the evening where the $59 level was breached for CLQ9. API reported a much larger decline to crude stocks than what was expected. If confirmed in today’s data, it would be the biggest draw since March. Also giving support to the energy sector is the report that PES will be closing its largest refinery on the East Coast, where there have been 2 serious fires recently. Gasoline futures have jumped on this news. Grain markets find themselves a couple of cents lower today, as this market continues to mark time ahead of Friday’s reports. It should be noted that the planting intentions report may not carry as much weight as usual, since data was collected as decisions were still being made, regarding planting, due to the excessive rains.
As mentioned, oil has had a strong bid since yesterday afternoon, as the large reported draw on crude stocks has the market being cautious about available supply going forward. This, in front of the OPEC+ meeting next week, where continuation of production quotas is bound to be a primary topic. The closure of the PES refinery, which is the largest supplier of gas to the East Coast also raises supply concerns in this sector. Today, data from EIA and DOE will provide a clearer picture of things. If the oil rally continues, there are some moving average levels just overhead which should act as resistance. The first level is 59.33 (CLQ9), which is the 100 day MA. 59.44 is the 50 day MA. The biggest level is 59.62, which is the 200 day MA. If the market could take out this level, some buy stops could be elected, along with buy signals triggered for the “algo” community.
Gold now has almost a $40 correction down from the highs put in during the overnight trade 2 evenings ago. This rally saw gold prices push up to a 6 year high. Fed Chairman Powell’s comments, which fanned the flames in the market looking for a very aggressive easing campaign to come from the Fed, gave a bid to currencies and made room for the correction in gold. St. Louis Fed President Bullard, who dissented at last week’s Fed meeting and was calling for an immediate cut 25 basis points to short term rates, spoke yesterday as well, reconfirming that he felt the more gradualist 25 bp cut would be sufficient at the present time, and didn’t see a need for a 50 bp cut. The market had been ramping up its expectations to see a cut of 50 at the July meeting, and these comments doused some water on that. I also mentioned in yesterday’s commentary that all of the media outlets were piling on the “get long gold” bandwagon, which is usually a good sign the party is coming to a quick end.
Grain prices are lower today, following a few up sessions. The continuation of rain systems moving across the middle of the country, coupled with the conditions and progress reports from Monday afternoon, keep the market on the defensive, regarding the state of and ultimately, what this year’s crops will look like. Early returns from the winter wheat harvest show crops with low protein levels. If this continues, it should be supportive for the Minneapolis wheat futures, as blenders will need to mix more of the spring wheat (higher protein content) into the equation to get protein levels up to where they need to be. Over the past few sessions, there has been a large amount of position covering taking place. From Friday’s trade on, soybean open interest has declined over 65k (down almost 20k in yesterday’s trade). The CFTC reported on Friday that funds still remained spec short 68k contracts, and now they could be very close to square going into Friday’s reports. Not only are beans still lagging in planting, but with Trump and Xi meeting this weekend at the G-20, if anything positive on the trade front comes, soybeans should benefit. Makes some sense to cover some shorts. Wheat futures, both Chicago and Kansas City have also seen covering since Friday. Chicago open interest has declined over 40k, Kansas City over 15k. Funds were reported to be carrying spec shorts in these products as well.
Looking at other commodities, prices continue to be directly affected by movements in the dollar. With the dollar uptick following Powell yesterday, commodity prices find themselves lower this morning. For coffee, this is a break from a strong rally, driven by a strengthening Brazilian real and concerns about colder temperatures in Brazil causing some damage to the beans. There is also concern of potential freezing there. Lumber prices were lower yesterday, following disappointing new home sales data released. Cotton futures are the outlier here today, posting a decent move higher thus far in the overnight trade. The turbulent weather observed this season is potentially having an impact on cotton as well, which could see a loss of planted acres as a result. Rains causing flooding in the southwest and Midwest, and extreme drought in the south is creating problems for cotton. Also boosting prices is optimism that trade progress is made at the G-20 meetings.
The US weather continues to see these rain systems, with sometimes severe storms, popping up into the forecasts. A legitimate taste of summertime temperatures is moving across the middle of the country right now, but not expected to remain. Overall, the extended forecast into July has somewhat cooler temperatures and continued rains. In Europe and the Black Sea, it is a different story. Hot and dry weather are having an impact on the crops, leading to a rally in Paris wheat prices and bringing into question the size of the Ukrainian wheat harvest. For the Russian spring wheat, the early returns are showing mixed yields, with good protein levels and high quality.
Friendly reminder: First Notice day for July 2019 futures contracts at the CBOT is this Friday, June 28. Any LONG positions are subject to being stopped for exchange delivery. To avoid any potential risk of receiving a delivery notice, all LONG July 2019 positions should be rolled to another contract or liquidated by the close of business tomorrow, Thursday June 27.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 888.25 915.00 924.25
CZ9 413.75 404.75 402.00
WU9 485.00 487.00 517.50
KWU9 445.50 460.00 505.50
MWU9 545.50 556.00 578.25
SMZ9 315.3 317.5 318.8
BOZ9 28.41 29.57 29.75
CLQ9 59.44 59.33 59.62
GCQ9 1311.7 1315.7 1288.6
LHQ9 90.130 88.540 84.910
LCQ9 108.560 112.390 112.875
KCU9 97.35 100.40 108.80
CCU9 2401 2347 2314
CTZ9 69.81 72.17 74.18
SBV9 12.54 12.87 12.99
JOU9 105.05 114.10 127.00
HGN9 275.20 282.35 278.95
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404