RJO FuturesCast

February 26, 2021 | Volume 15, Issue 8

The Markets

Metals - Dip in Platinum Presents Opportunity

Platinum has been the best performing precious metal over the past four months. We have to pay attention to what’s going on in this metal. Platinum has been beat down versus gold for too long. I want to bring your attention back to November 9th 2020. That was the LOW in platinum. The low in platinum on that day was $851.00 per ounce. April gold low on that same day was $1,859.60 per ounce. The differential on that day was $1,008, gold over platinum. Since then platinum has rallied 63%! Today the differential is at $552. Platinum’s discount to gold is what made it so attractive to money managers and experienced commodity traders that recognized that platinum was severely under-valued at $1,000 under gold. But there’s more to platinum than a “proxy” for gold. Industrial demand has further fueled platinum’s rally. Its use in catalytic converters is widely known and demand for vehicles has increased as signs of the economy growing cannot be ignored. More importantly is future demand for clean energy. Hydrogen power. Hydrogen fuel cell electric vehicles are the future and all the auto makers are getting on board. Platinum will be in much greater demand for those vehicles.

Platinum is still a very good value at $1,200. Metals are already in the beginning of a major bull market. Inflation will be added support after we embrace the fact that interest rates are also rising. Metals are dipping right now because interest rates have risen too fast. Platinum has been ignored for too long. Future demand will drive platinum back towards $2,000. It’s been there before; it won’t be that hard to get back to $2,000.

Platinum Apr '21 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 fcholly@rjofutures.com.
Metals - Silver Under Pressure

Silver is under pressure with a potential rise in interest rate hampering real inflation pressure as per the chart below. But as I have written about this in the past with the same chart, I have below. Silver still can blow above $30 provided the buzz for infrastructure spending accelerates to boost the economy. So bears could have trouble hitting silver too hard so to speak. I will be shocked to see silver trade below $22 to $20 range. These sideways markets provide a great deal of option trading opportunities. Please reach out to me to discuss that. Enjoy trading.

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 Set for Nearly 20% Monthly Gain

Oil prices fell early Friday as bond prices broke leading to Dollar gains, as well as the expectation of more supply coming online. Despite the dip in price, the market is poised for a monthly gain of nearly 20% amid domestic supply disruptions as will demand optimism surrounding the vaccine. OPEC+ are expected to allow an increase in output at next week’s meeting given the jump in price as well as improving demand prospects. In addition, a bullish development can be found in reports that Exxon Mobil has seen its total reserves reduced by 33% from the price drop as well as some current outages from the recent winter storm in the Gulf. The market remains bullish trend with today’s range seen between 58.43 – 64.15.

Crude Oil Apr '21 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 - Lower Covid-19 Case Numbers Brings Hope to Longer-Term Cocoa Demand Outlook

Cocoa prices saw a move higher this week – with the May contract trading towards 2600. As Covid vaccines continue to be distributed, cases appear to be headed lower. If this pattern continues, look for more areas to lighten up restrictions and this should lead to economic growth. Cocoa specifically has been greatly affected by lockdowns. Chocolate companies continue to report weaker data during the pandemic as consumers shift their income towards necessities.

Looking at the currencies, a weaker Pound and stronger Euro has had little affect on this week’s cocoa rally. Cocoa appears to be trading more off its own fundamental hope and less off the macro picture as we have seen weaker equities this week.

Cocoa producing nations are deciding on whether they should come together to have more control of the supply side of the equation, but many are leery. This could cause issues on many levels – mainly with their local governments.

Technically, cocoa appears to be headed for 2700 in the May contract if vaccines rollouts continue to show that they are helping the public. Next week will be telling for the soft, if equities continue to move lower and currencies continue their volatility will cocoa continue its own trend higher?

Cocoa May '21 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.
Agricultural - Grain Futures Update w/Stephen Davis - 02/26/2021
China is currently upholding their end of the Phase 1 Trade Deal signed last year and is currently buying U.S. grains at an unprecedented rate. Stephen Davis dives into this and comments on how it will impact grains going forward.
Agricultural - Weakness in Live Cattle Market

Even though we’ve seen a decent bounce from yesterday’s session, weakness still remains in the April cattle market. On the cash side of things, the USDA boxed beef cutout was down 8-cents at mid-session yesterday and closed 36-cents lower at $240.39. This was up from $238.85 the previous week. Cash live cattle traded steady with last week in most regions, except Iowa/Minnesota, which was higher. In Iowa/Minnesota 469 head traded at 112.25-117 and an average price of 115.29, up from an average of 114.50 last week. In Kansas, 238 traded at 114 versus an average of 113.99 last week. In Nebraska, 1,929 head traded at 114 versus an average of 113.76 last week. In Texas/Oklahoma, 41 head traded at 114 versus an average of 114 last week.

US beef export sales for the week ending February 18 came in at 8,470 tonnes, down from 22,868 the previous week and the lowest since December 31. Cumulative sales have reached 334,189 tonnes, up from 271,753 a year ago and the highest on record. The five-year average is 214,730 tonnes. The largest buyer this week was South Korea at 3,832 tonnes, closely followed by Japan at 3,098. The next largest buyer was Mexico at 687 tonnes. China cancelled 960. South Korea has the most commitments for 2021 at 95,349 tonnes, followed by Japan at 70,371, China at 43,536, and Hong Kong at 43,228. I would still be looking for this market to trend lower and have a price target range around the next level of support which looks to be around $120. With China cancelling a lot of their orders, this could send the market into further bear territory, on the other hand all we needs is some good fundamental news coming out of the CCP in.

Live Cattle Apr '21 Daily Chart
Equity - Stocks Looking to Rally

U.S. stock futures quickly rallied off their lows this morning after a release of a Federal Reserve inflation gauge that calmed some worries of the rising interest rate. The Fed released their personal consumption index expenditures price index, PCE, showing an increase of 0.3% for the month which was slightly ahead of the expected 0.2%. Conversely, yields on treasuries dropped after this release. The 10- year slipped close to 5 basis points to 1.47% after seeing a high above 1.6% on Thursday. The 10-year, a bond rate used as a benchmark for auto and mortgage loans, is up a surprising 50 basis points since the beginning of the year. Traders will also be looking at Congress today as the Democratic-controlled U.S. House of Representatives looks to pass President Biden’s $1.9 trillion coronavirus aid bill. This would be his first major legislative victory of his presidency.

Support today is 376000 and 37200 with resistance checking in at 389000 and 3980000.

E-mini S&P 500 Mar '21 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.
Economy - Futures Market Outlook w/John Caruso - 02/26/2021

Risk happens slowly, and then all at once. This was certainly the case in the bond/interest rates market yesterday. The 10yr yield crept higher overnight to 1.48%, eclipsed the 1.50% mark late morning, and then spiked to 1.61%, wreaking havoc on the bond market, and simultaneously spooking the stock market.  Perhaps the most significant development was the 10yr benchmark yield eclipsing the S&P 500 dividend yield. Why?  In short, it’s a signal of direct competition to the stock market.  It’s a wake-up call to investors that stocks may no longer be the only game in town to capture yield going forward. Believe it or not, there’s plenty of institutional investors/pensions in this world that would be ok with parking a portion of their liquid capital in government bonds at 1.50% vs having to be “all in” on higher risk investments aka stocks to capture yield. But, 1.50% is still a paltry return, and also arguably adjusted for inflation and devalued dollars over a 10yr horizon may be ultimately be a poor investment, which is still a reason we like the short side in bonds (and long side of stocks) and think debt market investors will continue to demand higher yields based upon inflation aka higher commodity price expectations.  Congratulations for those that were on board with this market call with us since Nov/Dec. And it’s likely not over yet.  Sharpen your knives because we’ll be back in on the short side of bonds headed into headline CPI in 2 weeks. 

Stocks- we’re still hunting for long side entries. We’re not even remotely close to positioning for what we think may be coming in the back half of this year, so let’s just put those questions to rest. I have no fundamental nor quantitative reason go there yet. Believe me, I love shorting stocks, and you’ll be the first to know when we make that leap. For now, Growth/Inflation accelerating, and strong earnings accelerations through Q2 remains our call….long stocks, short bonds, long commodities.  Remember, we’re comparing y/y to the government shutdown in Q2 2020. Value stocks will likely continue to outperform, as they were the most affected by the pandemic and shutdown whereas tech was largely considered the “Stay at Home” stocks, and will have a difficult time (dare I say impossible time) beating y/y growth expectations in EPS and Profits – hence the flatlining/weakening chart structures of AAPL and AMZN.  Hope that makes sense.  Wall st is or at least should be chasing the high beta garbage small cap stocks…I mean honestly how much longer can they get away with charging 2% and 20% to buy and hold FAANG stocks?  Anybody can do that, and most do. 

Dollar- bounce…we’ve been expecting one. The dollar is going to move from immediate OS yesterday at the low end of the range, to close to immediate OB. Dollar likes “up rates” and “down stocks” and that’s precisely the formula we have this morning. We’re still largely dollar bears, so we’ll hunt for short opportunities here in coming days/weeks. Dollar remains bearish trend, and bearish in our model in Scenario 2. 

The Fed’s favorite inflation indicator = PCE Index +1.5% vs 1.4% y/y

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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