Good morning,
DXU9 97.260 +0.062 GCZ9 1529.7 +12.5 ESU9 2870.00 -10.25 CLU9 54.45 -0.48
The markets remain on edge between the unrest in Hong Kong and political uncertainty in Argentina. Gold futures once again appear to be the path of least resistance for investing, presently over $20 higher on the day, having almost been $30 higher earlier in the overnight trade. South American currencies remain in the spotlight, having been hit hard yesterday with President Macri’s large defeat in the primary election in Argentina. Brazil had some issues of its own, posting a second consecutive lower GDP figure. The Brazilian real traded below the 4 level for the first time since May 29 of this year. The USDA decided to add to the excitement yesterday, posting larger than expected production and inventory numbers for corn and wheat, while coming in lower than expected in soybeans. Many commodities found themselves lower yesterday, in part due to the South American currency weakness. The oil market bounced yesterday and throughout the overnight session, driven by supply concerns. It is expected the API will report domestic inventories in the US fell by 2.29 m barrels last week.
The corn market, closely followed by the wheat market, grab the lead paragraph today. Yesterday, the market was completely stunned from the re-survey of planting intentions, suggesting 90 m acres of corn was to be planted this year (from an initial report of 91.7 m and expectations of 87.7 m), while only 76.7 m acres of soybeans would be planted (initial 80.0m., expected 80.9m). Not only did this ratchet up corn production and stocks numbers, but the USDA revised higher its yield estimate for corn to 169.5 bpa (166.0 last; 164.9 est). Soybean yield estimates were left unchanged (48.5 bpa), but the market was expecting to see 47.4 bpa, due to the later start dates and dry conditions over the past month. Domestic wheat production and inventory numbers were above expectations as well. Corn, where the funds to carried a spec long position, dropped to limit down (-25 cents) almost immediately on the release. The synthetic market, based upon where in the money options were trading, was suggesting corn was another 12 cents lower. This morning, corn is down 11 cents (from the locked limit level, which is where corn settled). While many in the market are thinking funds bailed out of long positions, preliminary open interest only showed a decline of 1.7k. So, it would appear the funds still had some work to do (which may have taken place on the overnight trade down, as corn volume is over 130k already today). Wheat futures also traded sharply lower yesterday, following corn down, while dropping 25 to 30 cents. Wheat has managed to stabilize a bit in the overnight trade. The USDA did project exports to rise and usage of wheat for feed to increase. The break in price also may benefit domestic wheat in the export arena, especially as weather issues in other growing areas of the world are causing crop projections to be lowered there. Soybeans were also lower yesterday, primarily in sympathy with the corn and wheat markets. The data came in as somewhat of a bullish surprise for beans. The USDA did lower the projection for soybean exports, which may have accounted for some of the weakness to prices yesterday, given there is no sign of the trade battle ending soon. Soybeans are higher today, probably form the market digesting the data and yesterday afternoon’s conditions reports being behind.
Worth noting, the USDA reported acres filed for prevent plant in corn was 11.211 m, soybeans 4.351 m ands wheat 2.209 m acres.
The cotton market also saw prices continue to cascade lower, as the USDA also projected domestic production and inventories to be higher than expected. Again, this at a time when a major trading partner, China, is not in the picture due to the trade dispute. Cotton has been trading down for several sessions now on this premise, so yesterday’s move lower may have been somewhat mitigated by part of the news already priced in. The coffee market also was hit hard yesterday, driven down by the sharp move lower in the South American currencies. Beneficial growing conditions, leading to an expected large crop, along with the dollar strength incentivizing South American producers to sell, all led to lower prices. The currency move also had an impact on the sugar market. Orange juice futures also saw a large move lower. A very big crop and changing consumption habits, away from sugar based products factored in to the OJ move.
Live cattle futures were locked limit down yesterday, driven down by a reported destroyed by fire slaughter house in Kansas. This was a large plant, so a good portion of the cattle herd may be spared while the plant gets itself back to fully functional. The early indications are live cattle futures could be trading around the expanded lock limit down level when the market opens today.
As mentioned, gold has had another sharp move higher in the overnight trade. Given the tensions in Hong Kong, the political uncertainties surrounding Argentina and spreading into Europe with Italy (not to mention ongoing Brexit banter), global monetary policies remaining on dovish courses, increased volatility in the FX markets and less than stable equity and oil markets makes gold the place to be! Hard to argue, since gold has moved from below $1400 to almost trading $1550 (last night) over the past 2 months. With the current uncertainties over many markets, gold should remain supported, with $1500 the most logical place to see strong support.
Speaking of uncertainties, July CPI for the US was just released, coming in higher than the market anticipated. Another obstacle for those in the market trying to determine when, and how aggressive, the Fed may be with continuing an easing campaign. The market has been trying hard to influence for aggressive cuts, based upon the huge rally observed of late in fixed income markets. Today’s inflation figures may cool that a bit.
Lastly, oil continues to chop around in a wide trading range. It is expected today’s weekly inventory data from the API should show a decline to stocks from last week (2.29 m bbl). Tomorrow brings more production and inventory data for oil.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 904.25 899.25 921.25
CZ9 436.50 415.50 407.50
WU9 511.25 489.75 507.75
KWU9 450.25 444.50 483.50
MWU9 542.00 542.50 564.25
SMZ9 316.7 314.9 318.3
BOZ9 28.57 28.74 29.46
CLU9 55.95 59.01 57.56
GCZ9 1416.5 1362.4 1333.2
LHV9 73.895 80.515 74.715
LCV9 107.150 110.325 112.790
KCZ9 106.70 103.35 110.10
CCZ9 2460 2409 2360
CTZ9 64.23 68.71 71.96
SBV9 12.29 12.48 12.85
JOU9 103.50 107.10 119.10
HGU9 266.90 275.45 277.15
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404