Good morning,
DXM9 96.43 -0.379 GCM9 1295.1 +1.8 ESM9 2910.50 +18.75 CLK9 64.50 +0.92
A very active evening sets the table for what looks to be some very interesting trading in numerous markets to end the week. A main story came out of China, where new loans in March totaled 1.69 trillion yuan, compared to an expected amount of 1.25 trillion yuan. A possible translation could be the Chinese market feels a trade deal is close, and is ramping up. Chinese exports in March were also strong. Global equities bounced on this, along with industrial metals. The dollar came under pressure and dollar denominated commodity caught a bid. The oil market continues to receive support from supply concerns, with the next level of production quotas to set in for OPEC and Russia, along with supply restraints in Venezuela, Libya and Iran.
The oil market has been exhibiting good volatility of late, trading lower yesterday as the market continued to digest the larger than expected inventory build in crude, reported Wednesday afternoon. A combination of the already mentioned supply concerns and dollar decline has allowed the oil market to find support and work its way back up. The “risk on” attitude, coming from the friendly news out of China is being seen in equities and oil, as optimism for the global economy grows. The $65 level should be the next target for WTI, while Brent makes its way towards $72. Also providing support is a major US bank’s call for summer gas prices in the US to be above $3.
The metals are reversing back up, driven by the news. Copper, which was lower the past couple of sessions, on the reasoning that the Chinese economy may just be limping along here, popped higher with the fresh optimism provided last night. The lower dollar is also aiding, as it is aiding gold. Gold also was lower, by a decent amount, yesterday, as the market interpreted the inflation data reported yesterday to mean the Fed is less likely to cut interest rates anytime soon.
The lean hog market had plenty of excitement of its own yesterday, as hogs opened limit up, following the report that the US exported 90.7k mt of pork in March. Of that, 77.7k mt went to China, which was a record high US sale to them. The market took this as confirmation of significant progress in trade negotiations, along with the severity of the Swine Flu epidemic. Hogs did come back off later in the session, but still managed to close higher on the day. Live cattle also closed higher. Support to cattle is coming from continued concerns about flooding impacting the cattle, as more rain is forecast for areas already hard hit by rains. More focus was brought to this issue when the USDA announced it was offering Emergency Grazing Acreage in Iowa, following the bad weather. This is approved through May 14, in hopes to give assistance as the farmers deal with all the flooding issues from the bad weather.
The grain markets were mixed in yesterday’s trade, with wheat continuing to trade well as the winter storm persisted across the upper Midwest and Great Plains. Extended planting delays are being anticipated for spring wheat as a result. More support for wheat comes from Algeria looking to purchase 540k mt of wheat and Egypt announcing another tender as well. Bids for the Egyptian tender came from Russia, Ukraine, Romania and the US. The US had the lowest flat price for the wheat, but the cost of shipping may allow the other bids to win the business. A domestic forecasting agency revised higher its call for winter wheat yields to be 49.0 bpa vs 48.4 bpa. Soybeans traded lower yesterday, following a very poor export sales report. Overnight, China reported its March soybean imports were the lowest in 4 years. The corn market, after facing some bearish data over the past couple of weeks, still remains caught in a very narrow range. Funds remain with a large spec short in corn, but may be getting frustrated with a lack of follow through to the downside, given the strong data. As storms remain and are forecast for the corn belt and Plains for the next couple of weeks, the conversations about planting intentions switches to beans from corn (and spring wheat) will remain prevalent. An interesting point to take note of, while the forecast to the end of the month calls for drier conditions, the actual temperature will be low, and the soil temperatures could be too low to allow for planting, which could carry planting delays into May. Open interest in the grains was up in most products yesterday, with the exception being Kansas City wheat and the oilseed products, suggesting shorts may have been adding to positions. An updated look at fund positioning comes this afternoon in the CFTC’s COT report. The data comes from Tuesday, so re-positioning following the WASDE report should be reflected in the data.
The soft commodities had some action yesterday, with coffee posting a large move down, trading near 13 year lows. Futures volumes posted aa record day yesterday in coffee. A global supply glut, which sees production at a surplus, accounts for the pressure. Also, the declining Brazilian Real encourages farmers to be more aggressive in selling coffee, as it is denominated in dollars. The coffee glut is so big that, there presently is no premium priced in for specialty coffee beans. Growers of these beans are being forced to sell at regular prices. Cocoa was lower yesterday, as the trade appears to be taking profits from the recent rally, driven by dry conditions in the Ivory Coast. Orange Juice was down for the 8th straight session, as an abundant harvest in Florida weighs on prices. Cotton was also lower yesterday, but has recovered sharply this morning, as China announced it would be issuing 800k tons of extra cotton import quotas. This put a bid into cotton. Of course, the soft dollar today has brought support to all of the softs, with the exception of the Orange Juice.
Lastly, Goldman has changed its Federal Reserve forecast, moving the next increase of rates out to Q4 in 2020 from Q1 in 2020. This also may be putting some pressure on the dollar.
Mike Clifford
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