Good morning,
DXU9 97.860 +0.051 GCQ9 1433.5 +0.1 ESU9 3018.25 +6.00 CLU9 58.58 +0.53
Federal Reserve decision day is here! The markets have basically been chopping around, waiting for this for the past 10 days or so. The market is expecting to see a reduction of 25 basis points to short term rates. What will be interesting, as the press conference is taking place, is how the market interprets the Fed’s moves for the rest of the year. Volatile price action can be expected in many markets this afternoon as this all takes place. Ahead of the Fed, there will be some US economic data to observe, and possible serve as fodder for debates about what future Fed action should be. The ADP employment index is released, which is typically viewed as a precursor for Friday’s non-farm payrolls data. The Chicago purchasing managers index is also released this morning, which may give clues for what the national numbers may look like, due out tomorrow and Monday. China’s July PMI came out last night at 49.7, vs an expected 49.6.
**ADP July Employment Index 156k vs 112k last (expected +150k)**
Also coming out today is the weekly production and inventory reports for the oil sector from the DOE. Last night, the API reported US crude oil inventories fell by 6 m barrels last week, and gasoline inventories fell by 3.1 m bbls. The market was expecting a decline of 2.1 m bbls for crude oil and 1.8 m bbls for gasoline. Oil prices, which already had a decent bid yesterday, shot above $58 on this report. This $58 level has basically served as support in the overnight trade, and prices currently are close to the overnight highs, ahead of today’s data.
Trade talks between the US and China concluded last night, with no deal put in place. The next round of talks is slated for September. It is being reported that importing of US farm goods was discussed in the talks. Lack of a concrete deal, apparently isn’t sitting well with the soybean market, as prices leak down to the lowest levels in almost 2 months. Better weather appears in the forecast for beans, although a little more rain could be used, which is probably weighing on prices as well. Corn is inching lower as well, in what has been a narrow overnight trading range. Wheat prices are lower today, as winter wheat harvest winds down. The grain markets continue to monitor the weather and wait for the next WASDE report on August 12. This report, and the re-survey of planting intentions, should hold a lot of information to help gauge the direction of prices.
Cotton prices have been under pressure the past few sessions, with a lack of significant progress on the trade front. With the talks now concluded for the next month, cotton will return to focusing on the supply side of the equation, where a large crop is expected. This will also be updated in the WASDE report. Hog futures were limit down 2 sessions ago, and down over 2 cents in yesterday’s trade. Chinese demand again appears to be the catalyst, although with ASF remaining problematic, one would think that would translate to more demand for US hogs. Talk from the trade is that the recent run up in cash prices is slowing down. There was a large seller in the closing minutes of trade, also weighing on prices. Coffee futures were lower, as the market pulls back from heightened concerns about frost issues in Brazil. The Brazilian real and Columbian peso were lower yesterday, weighing on prices.
Gold prices are slightly higher this morning, ahead of an expected rate cut from the Fed. Gold, along with many other markets will get its direction for trade from what goes down in the press conference this afternoon. With the global landscape for monetary policy leaning dovish, gold prices remain within striking distance of the highs for the year. The downside to prices appears to be somewhat limited at this time. Copper prices were lower yesterday, also on lack of trade progress. Currently, prices are slightly positive, as equities are also firmer.
Today is month end, which means the market may be subject to profit taking or position squaring / window dressing flows throughout the day. With the Fed decision not coming until this afternoon, this phenomenon may be mitigated to a degree, but it’s good to keep this fact in mind for the late day trade.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 904.00 904.50 923.75
CZ9 439.25 414.00 457.00
WU9 512.75 488.00 511.25
KWU9 458.00 448.25 490.75
MWU9 548.50 546.50 568.75
SMZ9 319.2 316.3 319.1
BOZ9 28.43 28.90 29.55
CLU9 56.83 59.47 58.21
GCQ9 1371.7 1336.4 1311.3
LHV9 76.715 81.310 74.645
LCV9 107.240 111.285 113.135
KCU9 103.30 100.15 107.95
CCU9 2458 2387 2343
CTZ9 65.60 70.01 72.73
SBV9 12.35 12.59 12.95
JOU9 104.25 109.40 121.05
HGU9 268.55 278.40 278.20
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404