Good morning,
DXU9 97.390 -0.062 GCQ9 1429.8 +6.2 ESU9 3024.50 +3.00 CLU9 56.64 +0.76
Welcome to Thursday, in what has been a classic summertime market this week so far. There have been a few headlines out this week to jostle the market around a bit, but ultimately, markets are waiting for the next round of trade talks next week and the results of the Fed meeting on Wednesday. A reduction of short term interest rates by 25 basis points is priced into the market.
Oil was the main story yesterday, coming in to the session bid following the API report Tuesday afternoon showing a larger than expected decline to domestic inventories. DOE confirmed as much yesterday morning, showing big declines to stocks and production. Oil prices shot higher, taking out the $57 level in the process. The buying then began to stall, and prices leaked a little lower. The afternoon brought the headline that Kuwait and Saudi Arabia are coordinating a plan to resume oil production in the neutral zone. Oil prices shot lower on this, led by Brent crude. The spread between Brent and WTI is the widest it has been since May. The overnight trade found the market finding support against yesterday’s settle (CLU9), and is attempting to bounce.
Gold prices remain firm, managing to keep themselves within striking distance of the old highs. The dollar a touch lower today helps this, along with many uncertainties in the world, both on the geo-political front, and on the fiscal side. In about 30 minutes form this writing, the ECB releases its decision on monetary policy at the conclusion of its meeting. No change in rates is expected, although the ECB is expected to signal a cut in rates coming, probably in September. Copper prices remain firm, aided by trade hopes.
**ECB leaves rates unchanged** Gold pops $3 following this announcement.
Grain prices are mixed today, similar to what was observed yesterday. The prior session saw wheat have a strong day up, driven by continued lowering of expectations for the size of the Russian wheat crop. With global demand appearing to be on an uptick, the potential for less global supply supports prices. Russia’s domestic demand is expected to increase this year, and with a smaller harvest, the amount of wheat available for export may be around 30 mmt this season, compared to 36 mmt last year. Also aiding wheat prices was concerns about frost in Brazil possibly creating a shortfall of 500k mt of wheat. US wheat prices have rotated lower today, as winter wheat harvest progresses, continuing to show decent yields, but low protein levels. The spring wheat tour continues to show good to mixed yield potential for the crops. Soybeans were firm yesterday on renewed prospects of more purchases from China as news of a resumption to trade talks spread through the market. The reported cancellation of a sale of beans to an unknown source (presumed China) did throw some cold water on the euphoria, but hope springs eternal. Corn prices lagged yesterday, in what many observed to be the possible unwind of inter-commodity spreads in the grains, buying back wheat and soybeans, against selling out long positions in corn.
Other commodities had an active day, with the trade talks resumption announced. Cotton continues to keep ripping higher, driven by expectations of China being a very good buyer. Cotton is supported today from a headline suggesting China will allow tariff free purchases of cotton, along with hogs and corn. Hog futures may have a bid today on this news, especially with the positive sentiment in this market the past few sessions. Prices were almost limit bid 2 days ago, and open interest increased almost 5k in yesterday’s trade. Sugar prices bounced off very low price levels yesterday, getting a boost from a report that sugar production in central to southern Brazil for the first half of July is down almost 20%. Coffee futures continue to trade lower, led by fund selling, adding to an existing short position. With frost concerns in Brazil impacting the coffee beans diminishing, funds see an opportunity to take a shot at prices driven up on these concerns.
It’s another fairly quiet day on the US economic front. Tomorrow brings a fresh look at 2Q GDP, which could stir the market a bit. Maybe not about what the Fed will do with rates next week, but what may be in the pipeline down the road. Next week is a very big data week for the markets, along with the Fed. Enjoy the remainder of the relative calm this week is providing, and strap the boots on tight for next week’s action.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 900.75 906.25 924.25
CZ9 436.75 412.75 406.50
WU9 510.00 486.50 512.50
KWU9 457.00 449.25 493.50
MWU9 549.00 548.00 570.50
SMZ9 318.9 316.6 319.2
BOZ9 28.36 28.98 29.58
CLU9 57.30 59.54 58.51
GCQ9 1361.6 1331.5 1307.4
LHV9 77.310 80.975 74.425
LCV9 107.075 111.555 113.250
KCU9 102.70 100.30 108.40
CCU9 2452 2380 2338
CTZ9 65.82 70.39 72.97
SBV9 12.36 12.62 12.98
JOU9 104.50 110.10 121.95
HGU9 268.90 279.35 278.45
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404