RJO FuturesCast

January 3, 2020 | Volume 14, Issue 1

The Markets

Metals - Gold Higher After U.S. Airstrike

Uncertainty and tensions spiked in the Middle East with the U.S. airstrike overnight which killed an Iranian military leader. The February gold contract traded up to a high of 1554.0 in the overnight session and will likely close positive for the fourth week in a row. Earlier this week we saw weakness in Chinese gold imports for the month of November as well as a decline in India’s gold imports last year. The short-term trend in the gold market remains higher since it broke resistance of 1490.0 on December 24th. Momentum studies are approaching overbought levels which could indicate a pullback. A close below 1513.0 is needed to reverse the trend to the downside. Over the past month the gold market has held up well despite continued gains in in the stock market. Any escalations with the Middle East could see a risk off environment with a flight to safe-haven assets.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or therrmann@rjofutures.com.
Energy - Oil Prices Surge Following Killing of Iranian Military Leader

Oil prices have surged over 4% after a U.S. airstrike killed a high-ranking Iranian military leader, Qassem Soleimani, the Iranian general who led the Revolutionary Guard’s Quds force. The attack heightens geopolitical risk sentiment with fears of retaliation from Tehran on Middle Eastern energy infrastructure. This comes as tensions have been building after Iran backed Iraqi’s raided the American embassy earlier this week to protest U.S. airstrikes. The trade, now raised with geopolitical risk premium, will be looking ahead to oil demand growth as well as the current deal between OPEC and its partners. OPEC and its allies had agreed to a production cut of an additional 500,00 bpd to 1.2 million bpd that extends through March. Increased U.S. shale output has helped the U.S become the largest oil producer, doubling its oil production to 12.66 million bpd over the last decade according the EIA. Expectations, however, are for slower U.S. production growth to 1.1 million bpd down from 1.6 million bpd the year prior in 2019. With the recent spike in prices, the market is signaling immediate term overbought with today’s range see between 60.38 – 64.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Cocoa Futures - New Year, New Demand

March cocoa futures have rallied this past trading week as we leave 2019 and enter 2020. After the new year, the contract continued the move higher back towards 2550. The market has been supported by the recent positive global sentiment. Equities continue to make all-time highs which is carrying over to most commodities.

Cocoa is also finding a positive tone in the near-term demand of the soft. With the Euro and Pound moving higher, cocoa has followed. The Pound has climbed since the UK election. If demand can continue to grow out of Europe, even in the short-term, prices should be able to test 2600 by next month’s contract roll.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
Softs - Coffee Facing Possible Strong Correction

Tightening supplies have sparked a strong bull ran in March coffee prices over the past month, but we are likely to see a temporary selloff back down to the 122 level in the very near term. I am still very much bullish due to the fundamentals of March coffee, but such strong buying over a short period of time is likely to be met by profit taking and new longs may step aside for the time being. Our friends at The Hightower Group shared that “In spite of the year-ending pullback, coffee prices climbed more than 25% value during 2019 and rallied more than 50% above their 14-year lows posted last April.” This is significant for a market that has been in a major bear trend for such long period of time. We have broken above the 142245 high from October of 2018 and we will likely continue in this direction, after this pullback has taken place.

From a technical perspective, we have cleared several resistance areas, including 14225, but in the near term we should see some continued long liquidation, and the 122 level is critical for holding support. With momentum and volume at high levels, the bull camp should take a breath and re-join once the 122 level has been reached.

Agricultural - Grain Futures Update w/Stephen Davis - 01/03/2020
Its a new year and with that, a whole new slew of opportunities in the grain markets. Stephen Davis discusses these opportunities in addition to commentary on how the phase one deal with China is affecting grains.
Agricultural - While Fundamentals Support, There Are still Uncertainties in Corn Market

March corn appears to be setup for a breakout coming soon. Overnight news has caused some confusion as to how this will impact phase one of a trade deal. Managed money is holding a net short position of 85,000+ contracts while open interest remains low. On top of the potential short covering rally, the market may also need to absorb new buying from index funds. The Jan USDA supply/demand update is likely to show lower production and higher demand, with the wild card still being that China may buy more corn. Forecasts for drier weather in Brazilian and Argentine corn growing areas through mid-January.  In addition, corn continues to find support from the prospect of increased Chinese imports this year.

Corn fundamentals are shifting more in the favor of the bull camp.  Today, resistance comes in at 393 and 395 with support coming in around 389 and then 386 below that.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.
Currency - U.S. Dollar Futures Look to Weaken Further

U.S. dollar futures traded nearly 40 points higher on the first trading day of the new year. It appears that the oversold condition is being corrected, however the overall pattern in the dollar index is still extremely bearish. The Federal Reserve’s repurchase package is clearly pressuring the greenback as lower highs and lower lows take shape on the chart. The euro holds the most weight against the dollar index, constituting 58% of the weighing followed by the yen at 14%. Therefore, I believe these two currencies have the most to gain should the sell-off in the dollar continue. The daily chart pattern of the euro indicates a bottoming process is in place. President Trump is set to sign the phase one China deal on January 15th, which could help support the dollar. Furthermore, US interest rates remain more attractive relative to other countries. So the dollar will likely put up a fight before moving significantly lower, but the momentum is adamantly negative at the moment.

Interest Rates - Interest Rates Up to Start 2020

As we enter 2020, treasuries, including the lead bond, the 10-year note is up 11 ticks at 128.25. Stocks opened higher as well as the S&P 500 hit a high of 3251.75 but failed to take out the contract high at 3254 which was hit on Dec 27. My belief is that treasuries will find good bids early in the first quarter on continued uncertainty with trade issues from China. Just because “Phase One” will be signed and delivered, there will still be obstacles going forward as China is very reluctant to budge on futures demands from the U.S.  

Economic news around the globe overnight was somewhat strong as many countries reported decent PMI numbers and, in the U.S., we saw the Markit PMI come in a tad weaker. Looking at technicals in the 10-year note, 12829 is the 40-day moving average and 129-02 is the 50-day moving average. If the note clears those levels on a closing basis, look for the market to attack the 100-day moving average at 129-31. The remainder of the week in terms of the economic news is light with the highlight next week comes the monthly employment number which comes out next Friday. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or gperlin@rjofutures.com.
Equity - Stock Rally Paused After Assassination of Iranian General

U.S. equity futures are under pressure Friday morning after the assassination of top Iranian general, Qassem Suleimani, by American drones. Iran’s supreme leader vowed “severe revenge” against US forces. The commitment of traders’ summary reported non-commercial traders adding over 56,000 contracts to the long side of the S&P as of Monday, taking the overall position net long and not yet overbought. Meanwhile, the index is 4% higher since the beginning of December and finished 29% higher for 2019. I believe the market is stretched at these levels, so any escalation with Iran will likely cause further stock market selling. Adding to downside pressure is a large discrepancy between corporate earnings and index levels. Lastly, the melt-up in equities goes together with the repurchase operations coming from the Fed. This is pushing markets higher on the back of increased dollar liquidity, instead of positive economic data.

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