RJO FuturesCast

January 10, 2020 | Volume 14, Issue 2

The Markets

Metals - Feb Gold Could Lose Steam×

The markets always seem to humble even the best of traders at one point or another, with this week being no exception. The U.S. equity markets along with safe havens such as gold and platinum have seen massive intraday swings from the Iran missile attack. Let’s look at where gold prices should go following the 7-year high that was just made at $1613. First and foremost, it was too far too fast in my opinion. Had the tweet from President Trump now been sent out late the same night as the attack, it’s likely we could have seen push well above 1650 that next morning. Gold has made these moves before, but it can be short lived.  Middle east blips can be excellent day trades, but these events historically do not push markets such as gold higher longer than a few weeks.

Longer term support for gold above $1450-1500 could be attributed to central bank buying worldwide is at the highest levels since 1971, with 650 tons of gold purchased in 2018 alone. Banks in countries such as Russia, Turkey, and China are all buying heavily in the physical realm. Every country has their own reason for this, with Russia doing it to break away from the U.S. dollar specifically as an example. Here are a few ways to watch gold, with the specifics found by contacting me directly. Look at the options for a good plan now that volatility premium has picked up significantly. There are calculated risk plays that can be made involving a combination of long and short options in different months. There is also a pure directional play involving futures with options as a hedge against the futures. Gold seems a bit overvalued even at 1560 in my opinion and would be a buyer at levels that are closer to 1525. 

Metals - Silver Slid and Now Recovers×

Mar ’20 Silver recovers today after a harsh sell-off in precious metals following the flare up and simmer down of tensions between U.S. and Iran. Looking at the charts, silver has is trading about where it was prior to all the significant volatility sparked by geopolitical events. Momentum is still in favor of bulls and It seems silver is supported strongly around 17’900. Overall, I think 2020 will be a good year for the precious metals as the U.S. presidential election is likely to be an ugly affair and create volatility favoring safe haven instruments as investors may feel inclined to step out of equities until it’s clear whether or not we will have a business friendly POTUS.   

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.
Energy - Oil Eases After De-Escalation in Tension×

Oil sank the most in three months after rising nearly 5%, extracting most of the risk premium that had been built into the market following the killing of the top Iranian general, Qassim Suleimani. Oil reversed after the Islamic Revolutionary Guard Corps claimed responsibility for the missile strikes in Iraq earlier in the week with the administration stating that no one had been killed and that Iran was appearing to ‘stand down.’ In addition, a rather substantive build in inventories further weighed on prices. However, with the prospect of de-escalation and no imminent threat of an impact on oil supply look for oil prices to stabilize, which may further be buoyed by improved demand sentiment. The market is signaling immediate term oversold within its bullish trend with today’s range seen between 58.97 – 64.10.

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 - Will Sugar Prices Keep Climbing?×

Mar ’20 sugar futures are under pressure this morning like many markets with a tense global atmosphere but remain in a strong upward channel. The main fundamental story of a sizable global production deficit in sugar is still very much in play and continues to support the multi-month rise in sugar prices we have seen. At this point we are likely to see volatility presented by outside market influences, namely the impact of potential increase of military action in the middle east. It’s possible to we may find some bulls take their profits and step to the sidelines. However, do keep in mind that while military conflict with Iran could create a strong risk-off attitude, it could also push energy prices up in a dramatic way, which would have a very bullish influence on sugar due to its use in ethanol production. My analysis of this market is still very bullish, but bulls may need to brace themselves for volatile environment.

Softs - Cotton Looking Rather Bullish×

March 20 Cotton hammered down like many markets under the threat of war after the news reported Iranian missiles launched at bases housing US military personnel. After the threat of response was alleviated it seems many bulls instead of stepping to the sidelines saw an opportunity to buy into what they may consider to be an undervalued commodity. Its typically a very strong bullish indicator when charts take out previous lows and close positive, even more bullish when closing at the top of the trading range. Its interesting to note prices are just below a resistance point, if Mar 20 cotton can close above 70.30 I think the next target could easily be 72.00. Its not all bullish though, there are still plenty of cotton ending stocks in the US and globally which may weigh heavily on this economically sensitive market if good news dries up. This market has been in a strong upward trend though and is supported by great demand; if we have a bullish USDA report and/or the Phase 1 deal with China is signed, I think there could be a lot more upside potential.

Agricultural - Grain Futures Update w/Stephen Davis - 01/10/2019×

Stephen Davis discusses the past week in the grain markets and looks to the week ahead. China will be signing the Phase One Trade Deal on Monday and it will be interesting to see how that will affect the grains.

Agricultural - Live Cattle Demand Slowing×

April cattle seems to be in a bit of consolidation right now with yesterday’s sell-off ultimately resulting in an inside day because of the big rally we had on Monday. Demand seems to be slowing with packer margins down substantially over the past few weeks and with the 5 day forecast, weights are looking to be higher than normal due to the dry forecast. Cash cattle in Kansas traded at $124 on light volume, still leaving a large premium to the futures market. Some news that sparked the rally on Monday was cash trading $2 higher along with the news of Australia’s significant drop off of their beef exports because of the drought and wildfires that are going on.

The USDA estimated cattle slaughter came in at 123,000 head yesterday. This brings the total for the week so far to 244,000 head, up from 218,000 last week, and up from 239,000 a year ago. The USDA boxed beef cutout was down 8-cents at mid-session yesterday and closed 9-cents lower at $209.56. This was down from $209.66 the previous week and was the lowest the cutout had been since January 3. The cutout is down from $214.28 a year ago. There was some light trade of cash live cattle trade reported in Kansas yesterday (856 head) at 124, which was at the top end of last week's range. The COT report showed managed money traders were net sellers of 5,222 contracts of cattle for the week ending December 31, reducing their net long to 83,295.

Equity - Stocks Higher Despite Weak Numbers×

U.S. stock index futures are trading higher today, this was helped by gains from top technology names including Apple, while traders were closely watching the jobs report for confirmation that the U.S. economy remains healthy. According to data released by the Labor Department this morning, the market for U.S. jobs closed the year on a down note, with payroll and wage growth for December missing expectations. Nonfarm payrolls rose by just 145,000 while the unemployment rate remained steady at 3.5%. Analysists surveyed by Dow Jones had been forecasting a job growth number of 160,000. The jobless rate met expectations for staying at a 50-year low. Adding to the slow payroll growth, average hourly earnings only rose by 2.9%, well below the 3.1% projection. December marked the first time that wage gains were below 3% on a year-over-year basis since July 2018. “After a strong 256,000 gain in payrolls in November, boosted by the return of 40,000 GM workers, some slowdown in the pace of job gains in December was inevitable,” Michael Pearce, senior U.S. economist at Capital Economics, said in a note. Pearce characterized the job growth as “solid” even though it missed estimates and said, “we expect solid gains in payrolls to extend through 2020.”

Support is checking in today at 326500 and 325100, while resistance is showing 328500 and 329000.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.

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