Commodity Corner: Morning Comments

Good morning,


DXU9  97.975  -0.169            GCZ9  1449.3  +16.9                         ESU9  2941.50  -10.50           CLU9  55.17  +1.22


For those traders who are long volatility, what more could one ask for from the last 2 days?  First, we get Fed Chairman Powell’s press conference following the cut to short term rates on Wednesday, leaving the market guessing about where the Fed truly stands on policy.  Then, as the market was still deciphering the Fed message, President Trump decides to get involved, and drops the bombshell on the markets in the early afternoon yesterday of additional tariffs on Chinese products, applying a 10% tariff on $300B worth of goods effective September 1.  Not only did this announcement shatter markets that had built in hope of actual progress having taken place from the most recent meetings, but it also gives the appearance of President Trump attempting to address current monetary policy, with the way fixed income markets exploded higher (lower yields).  President Trump has not been shy about his feelings towards the Fed, and perhaps his announced tariffs, and the impact on rates and the dollar are his way of taking matters into his own hands.  Of course, overnight China announced retaliatory measures, and global equity markets took another leg down, while rates took another leg up in price.  On Wednesday, one of the reasons Chairman Powell gave for the rate cut was uncertainty about the trade negotiations, and expressed concerns for the economy if the negotiations were to continue to drag on. 


Most markets were impacted from yesterday’s announcement.  Gold exploded higher, as the reversal in the dollar, along with uncertainty of the apparent breakdown on trade sent traders flocking back to the safety net, where these same traders may have been bailing out of positions as recently as 1 day prior (post Fed).  Gold was getting hit hard all morning yesterday, but then had a very quick 180.  To toss more gas on the gold fire, talk of a North Korean missile test created nervousness as well. 


The oil market took one to the chin as well.  Prices were higher early in the day, being supported by the declines in the weekly production and inventory data.   Then, with the notion of trade talks breaking down, and the impact on the global economy, oil prices collapsed, moving down over $4.  It is probably a safe assumption that this big drop in prices isn’t sitting well with the OPEC+ community.  Oil has bounced over $1 in the overnight trade, but it feels like it will take some work to get back to prices observed a mere 24 hours ago. 


Then there is the agriculture sector, which typically finds itself near center court when US / China trade relations are discussed.  This sector had already been under selling pressure earlier in the week, as funds were piling back in to spec short positions in the grains, while the cotton and hog markets have been getting blasted all week as no trade resolution appeared in sight following the meetings.  A major repercussion of the length of these trade talks is that while China may need to acquire soybeans, and now hogs with the severity of ASF, all not trading with the US is doing is forcing China to find alternative means to source these products.  It’s usually doesn’t bode well when the competition is allowed to easily step in and compete for market share.  Many in the market believe this could become a lasting consequence of the trade battle, hurting the American agriculture community.  Cotton prices also continued to spiral down, as prices sank to a 3 year low.  Losing China as a trading partner, while a large harvest is expected, doesn’t  bode well for the cotton farmers. 


Grain prices are bouncing this morning, in part aided by the dollar softening up, but also from the aggressiveness of the fund selling pushing prices down a bit too far for the time being.  There still remains much uncertainty about what the US corn and bean crops will look like, so a good buying opportunity may have presented itself with the large break to prices.  The weather forecast for the next week appears good overall, but there are some pockets that may receive more rain than desired, while other areas that will be clamoring for some moisture.  A forecasting firm, Planalytics, updated its projections for this season’s US crop yields.  It left corn yields unchanged at 167.7 bpa, while raising soybean yields to 46.6 bpa from 46.3 bpa and spring wheat yields to 47.8 bpa from 47.6 bpa.  The updated WASDE from the USDA, along with the results of the new planting survey, will be released on Aug 12.    


The coffee market continued its move lower yesterday, as the stronger dollar continued to entice non US producers to aggressively sell.  With the frost concerns abating in Brazil, it looks like there will be a big crop in the pipeline, pressing prices down.  With these inputs in place, funds saw an opportunity to aggressively add to short positions.  Prices are near the lowest levels observed in the past 2 months.  Sugar prices are leaking lower, hovering around the $12 level, which served as support for a good portion of the trade this spring.  India’s sugar production going forward is projected to increase for the coming seasons, which may be adding some pressure on prices. 


I find it hard to believe that it has taken me to the 7th paragraph here to even mention today’s Non-Farm Payrolls and Unemployment Rate reports.  For the majority of my career in the industry, this was one of the most important events of the month.  Estimates for today’s July NFP reading is for an increase of 165k, versus 224k last month.  The Unemployment Rate is estimated to drop to 3.6% from 3.7%.  Typically, when the employment data is released so close to a Federal Reserve meeting, especially one where there was a change in policy, I tend to think the numbers may not carry the same weight as usual (as the Fed will receive a more current look at this data next month, prior to the next meeting).  However, given all the ambiguity surrounding where the market and the Fed (and President Trump)  think monetary policy needs to be, it feels like every piece of relevant economic data will be closely scrutinized for clues.  Also worth keeping an eye on will be today’s trade balance data, looking to see what impacts the trade war is having.


It seems prudent to keep your Twitter account open on one of your screens, as that may be where many of the market moving inputs may be coming from.  Be careful out there and good luck!                  


Technical Moving Averages:

Product               50 day                100 day               200 day

SX9                       905.00                   903.50                   923.00

CZ9                      439.25                   414.25                   407.00

WU9                    512.75                   488.50                   510.25

KWU9                  457.00                   447.75                   489.00

MWU9                547.25                   545.75                   567.75

SMZ9                   319.1                     316.1                     318.9

BOZ9                   28.44                     28.85                     29.52

CLU9                    56.55                     59.43                     58.07

GCZ9                    1389.3                   1350.6                   1325.1

LHV9                    76.070                   81.290                   74.685

LCV9                    107.230                 111.105                 113.070

KCU9                   103.50                   100.05                   107.65

CCU9                   2455                       2389                       2344

CTZ9                    65.44                     69.81                     72.59

SBV9                    12.35                     12.58                     12.94

JOU9                    104.20                   109.05                   120.60

HGU9                  268.30                   277.90                   278.00


Have a good day,




Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC