Good morning,
DXU9 97.160 +0.176 GCQ9 1396.5 -3.5 ESU9 2968.50 -10.00 CLQ9 58.05 +0.39
The markets are continuing to trade defensively today, ahead of Fed Chairman Powell’s testimony tomorrow and Thursday, as the debate now seems to be centered on if the Fed cuts rates at all at the July meeting. The market is still looking for a cut of 25 basis points, but equity and fixed income markets, along with the dollar are acting like the cut is not a done deal. Commodity prices are lower today, in part being pushed down by the stronger dollar.
Coffee prices had a big move lower yesterday, as the coldest temperatures for this time of year since 2013 in Brazil didn’t bring frost to as much of the growing area as was feared. This brought an end to a multi-day rally in coffee, primarily based upon fears of crop damage. Cocoa had a huge up day yesterday, trading to a 1 year high, as the movement towards the top growers implementing a surcharge to the price they sell beans at, to improve the farmers’ pay. It was thought there would be a discussion on this with the buyer community, but the producers appear to have decided they don’t need the buyers’ consent to move ahead with this. This is expected to keep prices elevated in the near term. In other commodity news, Asian Swine Fever remains a big concern in China, as the issue really hasn’t been resolved yet. Recent trade talks had pushed the topic to the backburner, but it still is having a big impact on feed demand. Hog feeding in China accounts for about 50% of its soymeal demand, so this continues to weigh on meal prices. Interestingly, hog and cattle futures continue to leak lower, in a long liquidation trade. Open interest declined on both of these products yesterday.
Grain prices are lower today, following yesterday afternoon’s crop conditions and progress reports. Conditions showed modest improvement, and with weather expected to be beneficial for the crops, that is expected to continue. The progress numbers still remain well behind the yearly averages, but at least they are taking steps in the right direction. Yesterday afternoon also brought updated data on fund positioning with the COT report from the CFTC. The report showed funds continuing to unwind long positions in corn, showing spec longs at approximately 130k contracts. However, this data was collected as of a week ago Tuesday, and since that time corn has rallied. Many in the market believe the funds are building back up the spec long position in corn, getting close to 200k. The market also has the funds reducing its short position in soybeans, with funds now short approximately 40k only. Wheat prices traded lower yesterday, as harvest progresses with decent early returns. Paris wheat also traded down, as harvest returns appear good there as well, even with the record hot temperatures incurred this season. US wheat prices are also under pressure today as Egypt conducts another purchase tender. 12 companies submitted bids, all form the Black Sea region, showing US prices remain too high to be competitive. Thursday brings the latest WASDE report from the USDA (estimates can be found at bottom of attachment labeled “current”), where a reduction to current season production and ending stocks domestically is expected, due to the late planting and early growing conditions this spring. This set of numbers may not receive its proper due, since many are waiting for August, after the USDA has conducted a fresh survey of what was actually planted.
Gold prices are lower today, moving back below the $1400 level. Even with the equity prices leaking lower from the highs, gold is drifting down as the dollar firms. It could be interpreted that the price action in gold could be a sign that the Fed may not be in as big of a hurry to cut rates, as the market would like it to be. Softer monetary policy is typically good for gold prices.
Oil prices traded higher yesterday, in part aided by reports of a tropical storm in the Gulf of Mexico potentially threatening offshore oil and gas production. The storm could hit later this week, and production could be halted as the storm moves through Louisiana and Texas. Geopolitical tensions also support prices, as Iran vows to retaliate for the UK seizure of an Iranian oil tanker. Russia reported oil production dropped in the first part of July. In addition, the data out of the US later today and tomorrow is expected to show that US oil inventories fell for the fourth week in a row.
While the extended weather forecast shows warmer temperatures with modest bouts of rain in the near term, looking out later into the month there are some concerns developing about conditions becoming too hot. Given the weather season to this point, I guess it would be prudent to wait and see what develops.
In addition to Fed Chairman Powell’s coming testimony, inflation data will be released in the US on Thursday and Friday. As the Fed has declared it is data dependent, and with inflation running on the softer side, these numbers could provide some wiggle room for a Fed cut, even with the stronger payrolls data from last Friday. There will be a fair amount of inputs this week for market participants to chew on while deciding where the Fed is at with policy.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 888.00 911.00 924.75
CZ9 422.75 407.75 404.00
WU9 495.75 486.00 516.00
KWU9 449.25 454.25 501.25
MWU9 547.75 552.75 575.75
SMZ9 315.7 317.1 319.1
BOZ9 28.26 29.32 29.71
CLQ9 58.38 59.54 59.26
GCQ9 1331.3 1321.9 1295.8
LHQ9 86.470 88.395 84.830
LCQ9 106.545 111.685 112.560
KCU9 99.60 100.20 108.80
CCU9 2421 2362 2320
CTZ9 68.18 71.58 73.74
SBV9 12.45 12.80 12.99
JOU9 103.60 112.40 124.80
HGU9 271.70 281.75 279.35
Have a good day,
Mike