RJO FuturesCast

February 21, 2020 | Volume 14, Issue 8

The Markets

Metals - April Gold is Full Steam Ahead

April gold futures have exploded well beyond the spike high we had back in early January with an acceleration of the coronavirus outbreak and news that it is continuing to spread. Traders should be cautious right now with the gold market now in territory we have not seen in 7+ years. This is the time to look at opportunities to utilize options now that volatility premium has increased and possibly trading the shorter term (30 days or less) options. The overall theme supporting gold that is central bank buying and countries such as Russia and China diversifying away from the strong U.S. dollar and buying substantial amounts of physical gold has not gone away. This has been propping up the market along with traders around the world taking note that the stock market seems to be shrugging off the virus and its longer-term impact on company earnings. Today, we see the US equities selling off and gold making an exploding move higher trading as high as $1652 as I write this.

When any market starts making moves like this it captivates people’s attention and the “FOMO” on the trade. Gold is likely to continue its move higher, but only briefly. What could derail this rally is any information that indicates the virus is under control and vaccines are now widely available. Right now, the vast majority of cases are in China, but the impact on the markets longer term is very unknown. I think the Chinese are likely to underreport the economic damage as they’ve done in the past and continue to inject stimulus money (over $400B so far) to keep their economy humming along. Gold is worth taking a shot at regardless, and if you would like to know how best to play the precious metal please contact me directly.

Metals - Palladium Price Indicated Global Warming

Have you looked at Palladium prices lately? well few months ago I wrote about it in insidefutures.com and described how price was heading to 2000. Well, here is my new prediction for palladium—it’s going over 3000

Below you see a chart of palladium/gold ratio sitting around 1.571. As you can see, palladium is the hottest and fastest performing metal as it is charging past gold.  In fact, it is even pulling platinum with it.

As I have stated before, many factors are contributing to this parabolic rally in Palladium, this didn’t happen overnight. I am amazed it took this long to explode. More countries are finally waking up to the fact that it is in their best interest to upgrade their emissions requirements. I think the public will continue to learn more about this metal in great detail as awareness continues to grow. I have sporadically written about it in the past, but palladium is becoming an advocate for clean air AND clear indication of global warming. If you don’t believe climate change is real, take a look at the chart below, it may change your mind.

Gold/Palladium Ratio Daily Chart
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 Falls on Renewed Virus Concerns

Oil prices fell nearly 2% early Friday amidst an increase in new coronavirus cases as well weakening Asian economic data which softened economic outlook and demand prospects. The upward reversal from yesterday’s high comes among a weekly decline in inventories, with US imports falling and exports increasing. Russian Energy Minister Novak noted on Thursday he does not see a reason to meet prior to the upcoming gathering in early March with expectations of an extension or deepening of the curbs. In addition, cease talks between forces fighting outside Libya’s capital have continued with an agreement potentially ending outages of about 1 million barrels per day, which would only serve to increase pressure on prices.  The market remains bearish trend with today’s range seen between 48.63-54.31.

Crude Oil Apr '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 - Cocoa Charts Look Bullish

Cocoa futures have been a little choppy but overall a solid bullish market. We’ve seen prices moving in a downward channel since the highs on February 7th highs but when pulling back to look at a bigger picture it appears to be nothing more than a bull flag. For the most part this market is supported by strong fundamentals with supply concerns related to weather induced production issues; but is subject to volatility on fluctuating demand concerns especially out of Asia. If we can see some sustained positive prospects that Chinese efforts to control the virus and support its economy is effective, we can reasonably expect to see cocoa prices climb up past 2900 and beyond.

Cocoa Mar '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 02/21/2020

Stephen Davis discusses this week's movements in the grain markets. With war on coronavirus still waging on, the impacts are still being felt on the grains around the world, specifically in China.

Agricultural - Cattle Prices Down Amid Record Production

There is plenty of beef in the short-term, but we may see a technical recovery. We would need to see some higher prices in cash cattle to support this uptrend. Right now, we’re looking at the highest beef production for this year since 2008, demand on the other had looks to sluggish causing a limited upside forecast. China did come out and say they are going to cut tariffs on some agriculture products which includes beef, but since they are not an aggressive buyer of beef, traders are reluctant to buy the market on this kind of news alone. The USDA boxed beef cutout was down 86-cents at mid-session yesterday and closed $1.13 lower at $206.13. This was down from $207.83 the previous week and was the lowest the cutout had been since October 17, 2018.

Cash live cattle were quiet on Monday and Tuesday, except for 18 loads that traded in Iowa/Minnesota at 119. The 5-area weighted average steer price last week was 118.90, down from 121.05 the previous week and 124.96 a year ago. The USDA estimated cattle slaughter came in at 123,000 head yesterday. This brings the total for the week so far to 230,000 head, down from 241,000 last week, but up from 215,000 a year ago. For the USDA Cattle-on-feed report for Friday, traders see placements of cattle into feedlots coming in at 1.5% above a year ago (range of down 2.2% to up 3.5%). Marketing's for the month of January are expected to be up 0.7% in a range of down 2.4% to up 1.6%. This would leave feedlot supply at as of February 1 at 2.4% above last year. The range is up 1.8% to up 3%.

Live Cattle Apr '20 Daily Chart
Currency - U.S. Dollar Reversal

The U.S. dollar index is under strong selling pressure Friday morning, trading 60 points below Thursday’s three-year high. After the parabolic run higher since the turn of the year, it is not surprising to see the market take a breath after this morning’s PMI number missed expectations, coming in at 48.6 vs 52.5 consensus. Depressed foreign currency futures are making a run higher in response to the dollar trade. Notable leaders are the European currencies, with the euro, the pound, and the Swiss trading 0.63% higher after better than expected PMI readings from both Britain and the EU. The technical action is indicative of reversals if these moves hold into the close. First support was broken in dollar index, which projects trade down to the 98.69 area. The prospect for additional rate cuts this year is pressuring the greenback, with odds of a cut at the April meeting now at 33% according to the CME. Should stocks see downside follow-through, talk of rate cuts will be more prominent and USD bears will roar more loudly. The Japanese yen is the weakest of the currency futures after Japan reported a Q4 GDP contraction of 6.3% this week.

USD Mar '20 Daily Chart

Equity - Stock Market Down as Coronavirus Cases Spike

U.S. stock futures are trading lower this morning on continued fears of a global economic decline from the coronavirusDow Jones Industrial Average futures are trading lower, with a loss of 95 points at the open. S&P 500 and Nasdaq 100 futures are also primed to lower open. The number of confirmed cases in China increased with over 800 new cases announced overnight. South Korea and Japan also announced new cases.

“It could be some larger players hedging against downside risk of the coronavirus spreading,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “That, on top of the Goldman call that a correction is more likely, has people on edge.”

Other economic events coming up include.

  • Earnings season rolls on, with results from Deere & Co. set for Friday.
  • Euro-area PMI and inflation data are also due Friday.
  • Group of 20 finance ministers and central bank chiefs are due to meet Feb. 22-23 in Riyadh, Saudi Arabia, and are expected to discuss efforts to support growth amid the coronavirus threat

Resistance today is 339900 and342600 with support at 334000 and 331000

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 888-861-1656 or jyasak@rjofutures.com.

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