Good morning,

 

DXU9  97.640  +0.088                       GCQ9  1418.7  +4.0                         ESU9  3012.50  +6.00                       CLU9  56.42  +0.40

 

The market closes the week with a relatively fresh look at the US economy in the 2Q GDP release.  The market is expecting an annualized rate of +1.8% q/q vs +3.1% for Q1.  Eyes will be on the Core PCE number as well, as most Fed speak of late has referenced low inflation.  The next major events for the market come next week, with the US and China returning to the trade negotiation table, the Federal Reserve meeting, where a cut in rates is fully priced in, the employment data at the end of the week, and all of the manufacturing surveys.  Certainly enough to keep the markets on edge, and may entice traders to square up positioning. 

 

The overnight trade has been fairly subdued, ahead of GDP and still shaking off the effects on prices yesterday from outgoing ECB President Draghi’s comments.  What appeared to have caught the markets off guard a bit were the comments that Draghi doesn’t see the economy falling into a recession and that he doesn’t feel there is much more the ECB can do, regarding stimulus via monetary policy. 

 

Gold prices, which came in to yesterday’s trade with a solid bid in front of the ECB, was hit hard following Draghi’s comments.  With the euro strengthening, gold was hit, but still managed to stay above the $1400 level.  With all of the uncertainties brewing next week, and the likely impact on currencies and other asset classes, gold should carry an underlying bid. 

 

The oil market continues to chop around in a range, being pushed and pulled by tensions in the Middle East and the production and inventory story in the US.  Without some major event taking place, this may continue until the next OPEC+ meeting on September 12. 

 

Grain prices are lower today, as the weather forecast for the next week looks very promising for crop development and wheat harvest.  The spring wheat tour concluded yesterday, with the results forecasting yields to be 43.1 bpa, vs last year’s estimate of 41.1 bpa.  It has been noted that the actual yield for spring wheat last year came in at 47 bpa, so not sure on the degree of accuracy with this projection.  Bottom line, the tour saw the yield potential as better than last year, but still below that of the 5 year average for the tour, which is 44.7 bpa.  Some comments from the tour saw the wheat planted on time struggled with some colder temperatures and muddy soils.  Wheat that was planted late appears underdeveloped and is vulnerable to an early freeze.  Wheat prices were supported in yesterday’s trade when the ICG lowered the estimate for wheat production by 6 mmt from Russia, the EU and Canada.  The extraordinary hot and dry weather in the EU and Russia are part of the reason for this.  Aside from the weather, the next major inputs for the grain markets will be any progress on trade and the WASDE report from the USDA on Aug 12 (the re-survey is released on this day as well). 

 

Cotton prices continue to rally in front of the trade talks next week.  The hope is increased buying out of China upon completion of a deal.  Coffee prices were lower again yesterday, but this time it was more driven by the declining Real in Brazil than on funds pushing down prices, adding to shorts.  In spite of the cooler temperatures, there is no apparent risk of frost in Brazil, putting pressure on prices.  Dry conditions are also accelerating the harvest progress.  Orange juice prices were hit hard yesterday, and are down over $1 again this morning.  Large crops are expected out of the US and Brazil, due to very favorable weather, leading to an abundant supply of oranges.  This at a time when consumption trends are moving away from sugar intake, doesn’t bode well for the supply and demand curve.         

 

Technical Moving Averages:

Product               50 day                100 day               200 day

SX9                       901.50                   905.75                   924.25

CZ9                      437.50                   413.00                   406.75

WU9                    511.00                   487.00                   512.25

KWU9                  457.50                   449.00                   492.75

MWU9                548.75                   547.50                   570.00

SMZ9                   319.0                     316.5                     319.1

BOZ9                   28.38                     28.96                     29.57

CLU9                    57.18                     59.52                     58.43

GCQ9                   1363.9                   1332.6                   1308.4

LHV9                    77.220                   81.075                   74.485

LCV9                    107.140                 111.490                 113.220

KCU9                   102.85                   100.30                   108.30                  

CCU9                   2455                       2382                       2340

CTZ9                    65.77                     70.30                     72.91

SBV9                    12.35                     12.61                     12.97

JOU9                    104.45                   109.95                   121.70

HGU9                  268.85                   279.10                   278.40

 

Have a good day,

 

Mike

 

Michael Clifford

 

141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              

312-604-6404