Good morning,

 

DXU9  97.370  -0.064                       GCZ9  1511.6  +2.1                         ESU9  2926.50  -13.50                   CLU9  53.20  +0.66

 

So much for the dog days of summer, as markets continue to whip around, being driven by a number of different inputs.  Equity markets have rotated lower in the overnight trade, following what was too euphoric of a bounce yesterday.  Oil continues to bounce off the lows put in a couple of sessions ago, driven lower on global economic concerns hurting demand.  Saudi Arabia announced yesterday it was planning on pulling back some production in September, in an effort to shore up prices in the short run.  OPEC+ meets next month, and this latest drop in prices and overall global production and demand levels is certain to be discussed.  As mentioned earlier in the week, the oil market is likely to have wild swings within the $60 to $ 50 range this month.  So far, that is panning out.

 

Gold is kicking back, being the benefactor of many different things taking place in the market.  The trade negotiations, and lack of progress is really behind all of it.  Economic concerns creates a shift to the safety of gold.  Global monetary policies continuing to be loosened, impacting currency values, also gives gold a bid.  Of course, accusations of FX manipulation also weighs in here.  Political tensions, both domestically in the US and internationally also supports safe haven investing.  It’s hard to call the current trading environment “risk off”, given yesterday’s big stock rally, but traders are certainly playing things close to the vest.  Gold prices held the psychologically important $1500 level on the early pullback yesterday, and remain poised to keep the grind going. 

 

The grain markets continue to trade in volatile ranges, as the markets have a session and a half remaining to wait and square up ahead of Monday’s WASDE report from the USDA (estimates on Current data attrachment).  Equally important will be the release of the re-survey results for plantings this season.  Given the amount of doubt cast from the initial release back on June 28, the market is expecting to see a very different set of data this time.  In yesterday’s trade, soybeans recovered from the earlier drubbings as the heat was turned back up on trade (or rather lack of trade progress).  China’s bean import data was stronger than expected, prompting a strong bounce yesterday.  Soybeans are higher today, but are facing headwinds from the White House holding off on licensing decisions for Huawei.  In spite of ASF which is thought to have created a loss of 5M hogs in China, Chinese demand from hog feeders drove up soymeal futures prices on the Dalian exchange and soybean premiums in Argentina, if there is no trade with the US.  Beam oil prices have rallied, as concerns of less demand for soymeal, due to ASF, would reduce the amount of bean oil available from the crush plants slowing down production. 

 

The wheat market has many strange dynamics taking place right now as well.  Most notable, the spread between Kansas City and Chicago wheat has inverted to historically wide levels.  Typically, the better quality Kansas City wheat trades at a premium to Chicago wheat.  This year, the spread has been inverted.  Perhaps as harvest comes to a close for the winter wheat, Kansas City prices can stabilize a bit and the spread can possibly converge.  However, many have tried to buy this spread, looking for reversion back to historically normal pricing, and it never really occurred.  In other wheat news, yields for the crop in Russia are coming in better than last season, 3.61 tons/ha vs 3.57 tons/ha.  It is also being reported that Russian wheat exports are down 12% from last year, as of Aug 6.  So, global supply concerns remain a problem for wheat prices.

 

Cocoa prices are shaping up to have the worst performing week of the past year, as improved weather in the producing nations improves expectations for an abundant harvest.  In addition, a major bank’s commodity research team cut its price forecast for cocoa.  Cotton prices continue to drop, again from the continued obstacles that keep emerging in the trade discussions.  An update look at the expectations for the size of this season’s US crop will come on Monday in the WASDE.  Sugar prices continue to bounce from a 10 month low in prices.   Technical traders cite a needed recovery from oversold conditions as the rational for sugar’s uptick.  A bit of stability in the Yuan fixing also provided some support to many commodities, including sugar.  Orange juice futures continued to trade higher yesterday, as concerns mount about diseased orange crops.  Orange juice prices have been under severe pressure the past few months, as what was expected to be an abundant harvest, coupled with waning demand pressed on the price.  If there are some concerns about the size of the harvest, then there is certainly room for a recovery to prices. 

 

Bottom line for most markets remains the drawn out trade talks between the US and China.  As time passes, both sides appear to tighten up and often appear further way from each other than actually making any progress.  Time also allows for numerous obstacles to present themselves, such as the Yuan fixings, Huawei, etc.  Many markets continue to get whipped around from headlines or Twitter blasts.  This may remain for awhile.

 

Looking at the US economic picture, today brings a report on July PPI.  The market will be looking for clues about if inflation remains well contained.  Regarding the great uncertainty surrounding US monetary policy, the next big event there takes place at the Fed conference at Jackson Hole, on August 22.  It is hoped that Fed Chairman Powell could possible give a bit more insight into what the Fed is thinking on policy.                

 

Technical Moving Averages:

Product               50 day                100 day               200 day

SX9                        905.25                   900.25                   921.50               

CZ9                      438.25                   415.25                   407.50

WU9                    512.50                   489.50                   508.50

KWU9                  453.75                   445.75                   485.25

MWU9                544.00                   543.75                   565.25

SMZ9                   317.9                     315.3                     318.5

BOZ9                   28.50                     28.74                     29.46

CLU9                    55.97                     59.12                     57.68

GCZ9                    1408.50                 1358.75                 1330.75

LHV9                    74.450                   80.810                   74.710

LCV9                    107.130                 110.605                 112.885

KCU9                   103.50                   99.80                     106.80

CCZ9                    2467                       2409                       2360

CTZ9                    64.60                     69.03                     72.15

SBV9                    12.31                     12.51                     12.88

JOU9                    103.85                   107.70                   119.50

HGU9                  267.15                   276.15                   277.35

 

 

Michael Clifford

 

141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              

312-604-6404