RJO FuturesCast

January 31, 2020 | Volume 14, Issue 5

The Markets

Metals - Coronavirus Helping Gold Extend Its Rally×

In the early morning trade, April gold has rebounded nicely off its overnight low and continued its rally mostly due to the fear of the coronavirus spreading even more throughout China and certainly slowing down their economy. Furthermore, anxiety on global growth slowing as well as travel due to this situation has helped push gold prices and bonds/notes higher. ETF’s saw their holding rise for the seventh-straight week of inflow putting their holdings to the highest in over 12 months. However, if there is any positive news that comes out of the World Health Organization (WHO) on progress of global containment, then look for a possible big pull back to pre-virus levels.

If we take a quick look at the daily April gold chart, you’ll clearly see that after it broke above the down trend on Christmas Eve, the shiny one has been in bullish trend ever since breaking new highs and trying to attack them again. As long as gold stay above $1,542 support, then look for the potential for it to break another contract high becomes more likely.

Gold Mar '20 Daily Chart
Metals - Silver Focusing on Global Headlines×

March silver spent the second half of the week fighting its way back from Monday and Tuesday’s move lower. Wednesday we saw a push down to the weekly low of 17.28 before recovering and closing positive on the day. It looks that the market is uncertain on a direction with potential virus/economic developments popping up around the world. This should lead to choppy trade with a slight lean to the upside with any alarming headlines and/or pullbacks in equity markets providing support. The bear side is looking for statements regarding the slowing or containment of the virus or a continued upside push in stocks. The March contract is continuing in a sideways channel and needs to see a push above 17.97 to go test resistance at 18.48. A close under 17.45 would give the bears control and push the market back down to the 17.00 level.

Silver Mar '20 Daily Chart

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 Falls on Coronavirus Fears×

Oil prices took a dive to three-month lows on Thursday before recouping some of the losses as the coronavirus continues to proliferate throughout China and other parts of East Asia, stifling future demand prospects. The World Health Organization labeled the virus a global health emergency Thursday afternoon. Geopolitical risks remain as well as ongoing threats against Middle Eastern supply. Libyan production outages continued this week coupled with reports of Yemeni attacks on Aramco facilities as well as reports that OPEC may be moving up their next scheduled meeting. With the recent decline in price, oil has moved to neutral trend with today’s range seen between 51.26 – 57.62.

Crude Oil Mar '20 Daily Chart
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 - Sugar Seeks to Resume Rally×

Mar ’20 sugar futures offered a very bullish signal Tuesday by hammering down taking out previous lows, spiking up taking out previous highs and ultimately closing positive. Wednesday we see sugar prices follow through on this bullish activity pushing prices higher again in what looks like a resumption of the ongoing rally supported by the expected massive global production deficit, and the sell-off we saw likely helps correct concerns of being overbought. At the time of writing, sugar is trading near a resistance point and will need to push higher and close above 14.77 to really prove the rally is back on. It’s possible to see some volatility as China is a major purchaser of this commodity, and like many other markets there is concern over near-term demand from Asia. This is still a very bullish market and my analysis suggests strong fundamentals are still in place and support from rebounding oil prices should be enough to put the sweet sugar ride back on track to more gains.

For a free consultation call my direct line at (312) 373-4875 or send an email to escoles@rjofutures.com.

Softs - Cocoa and the Coronavirus×

After cocoa rallied to a contract high, the fundamentals have weakened prices. Trader’s saw a boost in prices due to an increase in demand after last quarter’s grinding numbers. Of late, the global markets have weighed on commodities. Concerns about the coronavirus have affected the equity and futures markets. Asian demand of the soft has come into play. If this virus affects exports in large grinding nations, Asia specifically, we can see prices continue to move lower.

Production will need to come in lower than expected to give cocoa prices support. Technically, 2680 is support but the market would need a few more down sessions to sit there. Demand and coronavirus will guide cocoa over the next week as more cases and the spread continues.

Cocoa Mar '20 Daily Chart
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 into Serious Oversold Levels×

Speaking on the coronavirus, China’s Xi was quoted as saying, “the virus is a devil and we cannot let the devil hide”. Some very realistic concerns have surfaced regarding a widely reduced demand from China due to the ongoing coronavirus, which has easily sparked more continued selling pressure on March coffee prices. Coffee was already suffering some selling pressure due to a large Brazilian supply on the horizon.

Our friends at The Hightower Group shared that “coffee prices are at bargain levels already, but there is no major fundamental reason for the market to turn higher.”

For any type of rebound (or even support in the near term), traders must hear some good news in regard to China’s ability to stabilize and slay this “devil”.

From a technical perspective, we have violated the 10580 critical support level and now the 100 level is hoping to hold as somewhat psychological support. I believe this market to be extremely oversold, and with the slightest bit of good news related to the coronavirus, it is due for a strong bounce back.

Coffee Mar '20 Daily Chart
Agricultural - Corn Could Be More Active If Coronavirus is Under Control×

There is a sense of relief on virus issues overnight and it is possible that the uncertainties have reached their peak. Coronavirus was the major source of pressure all week long, as there are some doubts that China may not be able to fulfill their side of the trade deal agreement when it comes to purchasing our ag products. Corn prices followed through from Wednesday’s move and had another down day in yesterday’s trading session. Export sales came in at 1,234,700 tonnes for the current marketing year and 143,600 for the next marketing year, for a total of 1,378,300. This was well above trade expectations for sales near 600,000-1.2 million tonnes. Many regions of South America did not receive rains in the week ending January 28th. Precipitation is one thing that can ease the damage of high temperatures. These are still not considered “significant” weather threats right now. Resistance comes in at 382 and 387 while support comes in at 376 and 374.

Corn Mar '20 Daily Chart
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.
Agricultural - Grain Futures Update w/Stephen Davis - 01/31/2020×

There is one thing driving all markets this week and that is the Coronavirus. Stephen talks about how the virus is impacting the grain markets and what he expects in the coming week.

Currency - Dollar Breaks Down as Investors Eye the Pound×

U.S. dollar futures moved 20 points lower during Thursday’s session, bumping up against resistance at the 98 level earlier in the week and reversing to the downside. Selling continued into Friday’s session, with the dollar index trading along 97.45 during the first hour of pit trading. The FOMC met this week and announced that interest rates would remain unchanged for the time being. However, the developing coronavirus situation is spooking investors, and supporting the idea that the stock market cannot remain at current levels. Should stocks continue lower, there is an increasing probability that the Fed will continue quantitative easing and begin speaking about additional rate cuts. This will serve to weaken the dollar as investors price in more QE. The euro is in a win-by-default situation as the dollar moves lower despite European GDP growing by just 0.1% in the fourth quarter. German GDP is set to be released on February 14th. The British pound continues to look attractive to investors. The official Brexit date is today, January 31st. This situation has caused the pound to remain on the defensive over the past 3 years, and with the Bank of England holding interest rates steady this week, it would appear the pound has bottomed and is positioned to trade higher.

British Pound Mar '20 Daily Chart
Interest Rates - 10-Year Note Moves Higher as Fed Concludes Meeting×

The March 10-year note has seen an explosive move higher this week and yields approaching the 1.60 level. The move may be due largely on the continued Coronavirus headlines as the world waits and watches to see how exactly this extremely contagious virus spreads and the effects it will have on the world’s economy. 

Another important headline the market is facing happens later today when the fed concludes a two-day meeting on interest rates.   No move is expected but I believe Chairman Powell will be asked a very important question regarding the plans of the Fed on continuing to add to the balance sheet.   Since last September, the Fed has added to the balance sheet and some believe have created a massive bubble of inflated assets.  Looking at a technical picture of the 10-year note we have seen a move above resistance and with many of the retail public short the notes – this move may have more to go.   What’s interesting today, at least on the open of the stock market at 8:30am, is that both stocks and Treasuries were both up, but stocks have since turned down on $ Yen weakness

10-Year T-Note Mar '20 Daily Chart
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 - Stocks Weaker on Coronavirus Fears×

After strong closes for the major indices yesterday and blowout earnings from Amazon after the bell, one may have thought we would be seeing some follow through to the upside. The Dow, S&P, Nasdaq, and Russell all managed to briefly eclipse yesterday’s highs in the evening session but were unable to hold the rallies. Shortly after the opening bell, all four are down over one percent already, but they still have a bit of work to do if they’re going to register new lows for the week.  The sell-off is being largely attributed to uncertainty regarding the recent outbreak of the coronavirus and how it will impact things moving forward.   

Current updates on the Coronavirus indicate we’re now at approximately 200 deaths (all in China) and around 10,000 reported cases worldwide. Here in the United States, we have just six confirmed cases. With confirmed cases now in over twenty countries, the World Health Organization came out yesterday saying the outbreak was a global emergency. They’re suggesting that the virus is highly contagious, and it can take up to two weeks before symptoms are noticed.  With that in mind, it seems like it could be a good while before we’re back to business as usual.  Participants should monitor the situation closely as this slide is likely to continue in the event the numbers accelerate over the weekend.

E-mini S&P 500 Mar '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or bdixon@rjofutures.com.
Economy - Yields Fall Despite GDP×

The Bond market understands what’s happening here.  Yields have crashed to 1.56% this morning even in light of the “Better than expected” GDP number.  On the topic of GDP, how do you have the NY Fed Nowcast tracking at 1.22% just last week and our nowcast even below that – and pull the rabbit out of the hat this morning at 2.1% for Q4 2019.  It’s being widely discussed that the Fed massaged or understated the inflation component vs what they’ve been reporting all quarter and boosted the Net Exports component to boost Real GDP and keep it above 2% for the quarter.  Regardless, another y/y rate of change slowdown 2.9 (2018) to 2.3 (2019). 

The Bond market gets it, the USD is coming off, and Oil failed to hold our trend line of 52.95 – NOT GOOD.  The Fed will have to go more dovish in the future to combat what the macro market appears to be front running – our call for Scenario 4 (Growth and Inflation decelerating) in Q2 2020.  It’s happening now.  We know this, and we’ll trade accordingly going forward. 

The British Pound is off to the races.  Along with our call in Gold, Bonds and USD, the British Pound might be our highest conviction call going forward in the currency space.  The BOE met today and held interested rates steady, however downgraded their growth outlook.  Interesting enough, the last major data points out of the UK were positive.  We saw an acceleration in both their employment data as well as their PMI data.  With tomorrow being the official Brexit Day in the UK, we think the economic backdrop is becoming less ambiguous since the onset of Brexit 3yrs ago, and foreign investment will steadily be coming back to the UK creating higher demand for the Sterling.  Cheerio!

10-Year T-Note Mar '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or jcaruso@rjofutures.com.

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