Good morning,
DXU9 97.065 -0.030 GCQ9 1397.5 -3.0 ESU9 2975.50 -6.50 CLQ9 59.17 +1.34
As the market awaits the testimony from Fed Chairman Powell later this morning, oil is the market in the spotlight from the overnight trade. It is up $1.35 at this writing (6 AM CDT), blasting through the $59 level. The impetus for the surge came from the API yesterday afternoon, saying crude inventories fell by 8.13 million barrels last week. With US supplies edging down, and with OPEC+ agreeing to production quotas to remain into Q1 of 2020, prices shot up. Toss in the continued tensions with Iran, and oil doesn’t appear to have much downside at the moment. Of course, more production and supply data comes today from the DOE, so the market will be paying close attention to that. Also, Tropical Storm Barry is due to hit tomorrow morning, which could impact oil producing areas in Louisiana and Texas.
The other piece of news is that the US and China resumed trade talks last evening, which is the first correspondence since the tariffs were put on hold coming out of the G-20 meeting. US Trade Representative Lighthizer and Treasury Secretary Mnuchin spoke on the phone with Chinese Vice Premier Liu He, and the talks were said to be constructive. White House Advisor Kudlow was on the news last night, telling everyone that the talks were positive, but there is nothing to announce. It is being discussed that China will increase its US agricultural purchases, in exchange for the US loosening export restrictions to Huawei.
Equities are a touch lower this morning, and gold is down a couple of dollars as well. As mentioned, all eyes are on Fed Chairman Powell’s testimony, to gauge if the Fed is prepared to begin cutting rates, and how aggressive they might be. The market still expects a cut of 25 basis points at the July 31 meeting. The testimony begins at 9 AM CDT, but the text is released to the market at 7:30 AM CDT.
The grain markets have 1 more day of waiting ahead of tomorrow’s WASDE report from the USDA (estimates on attachment). Lower production numbers are expected, given the poor growing season to this point. A downtick in domestic inventories is also expected, but even with that, it should be noted that these are still high inventory levels by historical measures. The grain markets are lower today, as good weather is expected going forward to help with crop development. Also, as the African Swine Fever epidemic continues to be a problem, it has a negative impact on demand. Wheat prices are lower again today. Egypt bought 240k tons of wheat from Romania and Ukraine yesterday, with no bids coming out of the US nor Europe. This shows the price disparity of the different growing regions. Paris wheat continues to trade lower, trading at its lowest price in 8 weeks. US wheat prices are hurt by this non-competitiveness, along with decent weather for harvest progress. Results have been positive thus far on the wheat crops.
The coffee market continues to have a roller coaster trade, with very big swings. The primary driver is the uncertainty about the cold temperatures of late in Brazil, and if the frost that did occur had any significant impact on the coffee beans. The cotton market was hit hard yesterday, as beneficial weather is seen as good for the crop development. Also, the slow movement of trade talks raises demand concerns. News of the resumption of talks between the US and China has given cotton a bid this morning. Lean hogs were limit bid yesterday, in a bit of a delayed response, in my opinion, as ASF has moved back to the front pages of news stories for the past few days. As the story persists, hog prices should be supported, and there should be a negative impact on feed markets.
Copper prices traded at a 4 week low yesterday, driven down by concerns about global demand and economic weakness. Uncertainties about global monetary policies are also weighing on many asset prices, including copper. News of the renewed trade talks has also given copper a bid today as well.
The dollar has traded well for the past few weeks, as Fed comments and data have forced the market to acknowledge that the Fed isn’t likely to be as aggressive in cutting rates as what may have been expected at the beginning of June. Today’s testimony could confirm what the market currently thinks about policy, or possibly paint an even cloudier picture. This could impact the dollar, which will impact other markets.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 888.25 910.50 924.75
CZ9 424.00 408.00 404.25
WU9 497.00 485.75 515.75
KWU9 449.75 453.50 500.50
MWU9 547.75 552.25 575.25
SMZ9 315.8 317.0 319.1
BOZ9 28.25 29.29 29.71
CLQ9 58.27 59.55 59.21
GCQ9 1333.4 1322.7 1296.6
LHQ9 86.155 88.380 84.835
LCQ9 106.450 111.625 112.530
KCU9 99.85 100.20 108.80
CCU9 2424 2364 2322
CTZ9 67.92 71.49 73.68
SBV9 12.43 12.80 12.99
JOU9 103.50 112.20 124.55
HGU9 271.15 281.60 279.25
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404