RJO FuturesCast

March 6, 2020 | Volume 14, Issue 10

The Markets

Metals - Gold Looks to Break Out, Again!

April gold has appeared to establish itself as a safe haven asset after extreme amounts of volatility over the past week. When investors pushed stocks down to well over 1000 in the Dow, gold, actually fell in the biggest sell-off in one day since 2013. At one point it was down over $73! Despite this contrarian reaction gold is now reaching for the stars as we near $1700 on the front month April contract. As I stated in my past article on gold, investors should be using extreme caution in this market as panic seems to set in each day pushing gold volatility well beyond the norms. Options are now expensive, and for a reason. Gold going higher still needs to be the trade, but how you structure this is dependent on risk appetite.

There are a number of strategies that have low risk and moderate reward and give investors exposure to a market that could easily push toward all-time highs of $2000. Although I am not aggressively bullish just yet, anyone who says that “gold can’t go there or can’t trade like this forever” clearly has not been in futures trading for long. These are turbulent times and rather than sit on the sidelines, try options strategies or some of the smaller gold futures contracts (10, 33, 50, 100 OZ are available to trade) to get exposure during the corona virus epidemic.

Gold Apr '20 Daily Chart
Metals - Silver Riding the Equity Wave

The Dow is down 800 points at the time of this writing, and although silver is not headed to the moon, the path to least resistance still up. An exciting week with the Fed "aggressive" rate cut is forcing the market to take a deeper dive, but for now, let's call it a correction. The fear of the Covid-19 virus has made its way with the markets, but common logic will soon prevail. It is not that the virus isn't dangerous and killed people, but most of my reading discusses its similarity to the common flu. Look, the equity market was long overdue for a decent correction anyways, so I wasn't surprised about that. What surprised me and others the most was the fact that the FED went nuts with their rate cut of 50 base points. The last thing this market needs is a scared Fed. Supposedly, this will be a global coordinated effort to keep markets afloat globally. So far, I'm not convinced, but I could be wrong. All I know is that silver is taking advantage of it. Consider buying dips provided you have an appropriate "risk asset."  

The technical outlook remain strong, although it may close on lower side here, you really need a close below 16.60 in the front month May futures contract for the bears to have a better edge.

Silver May '20 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 Dumps Following OPEC Fallout

Oil prices dropped over 6% on Friday to multi-year lows following reports that Russia has not agreed to addition production cuts in excess of 1.5 million barrels per day, despite ongoing fleeting demand concerns due to the virus outbreak. Reports that Russia would only comply to extensions but not deeper cuts with non-OPEC states expecting to contribute 500,000 bpd, which would have brought the total to 3.6 million bpd, or about 3.6% of global supply. Despite lowered demand forecasts Russian Energy Minister Novak reiterated that the fallout was too early to assess. Reports by the IMF that the Chinese economy is operating at a 60% capacity has been largely discounted. Weekly U.S. crude stocks increase came in less than expected and the U.S. refinery rate declined, which alludes to the idea that U.S. crude supply may be limited in form. The market remains bearish trend with today’s range seen between 43.02 – 47.71.

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 - Are Sugar Futures a Bullish Opportunity?

May ’20 sugar futures are under continued pressure of long liquidation since the coronavirus wash-out in the markets started towards the end of February. The fundamentals however, are still strongly bullish in this market with the expected global production deficit this season, and potential for another next season. Sugar futures are much like coffee in that they will stick consistently to an established trend, and so the long liquidation continues until it runs out of steam. There appears to be firm support on the daily chart at 13.45 which I wouldn’t be surprised if we reach, but my analysis suggests that level is likely to hold. With such strong fundamentals I see sugar as being heavily undervalued at these prices, and from a technical perspective this market is over-sold. The selling should dry up soon, and when it does I think sugar futures will become an excellent bullish opportunity.

Sugar May '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 03/06/2020

Stephen Davis discusses the latest volatility in the grain markets. With U.S. stocks down across the board, grains are down too. With the exception of wheat, which interestingly seems to have an inverse relationship with the stocks.

Agricultural - Lean Hog Exports Strong, Despite Coronavirus Scares

Cattle demand remains in question and will remain in question until there is more certainty about the coronavirus, at least for the near term. If the consumers continue to have a “go nowhere/do nothing” kind of attitude, then not only does the demand fall, but there will be a backup of supply for both the short-term and into the year. At this point, any rally in cattle look like an opportunity to short the market. After yesterday’s sell-off of nearly 265 points, the market is technically oversold, but I think the fundamentals outweigh the technical in this situation because the spread of this coronavirus across the U.S. could continue to curtail beef demand. The USDA boxed beef cutout was up $1.25 at mid-session yesterday but closed just 9-cents higher at $206.62. This was down from $207.47 the previous week and down from $223.55 a year ago. Cash live cattle trade has been quiet this week, with no trades reported as of Tuesday afternoon. This follows declines of roughly $5/cwt last week. The USDA estimated cattle slaughter came in at 124,000 head yesterday. This brings the total for the week so far to 245,000 head, up from 242,000 last week at this time and up from 238,000 a year ago.

Surprisingly, lean hogs seem to be avoiding this virus mainly due to export shipments remaining strong. If they continue to do so, then the market looks poised for a nice recovery off the Feb lows. April hogs are still holding a substantial premium over the cash market at this time and with the drop in production, this appears to be justified. The CME lean hog index as of February 28th came in at 56.25, down from 56.33 the previous session but up from 55.91 a week before. The USDA estimated hog slaughter came in at 495,000 head yesterday. This brings the total for the week so far to 990,000 head, unchanged from last week, but up from 938,000 a year ago. The USDA pork cutout, released after the close yesterday, came in at $64.84, down 80 cents from $65.41 on Monday and down from $65.03 the previous week.

Lean Hogs Apr '20 Daily Chart
Currency - Currency Markets Reverse Aggressively

March U.S. dollar futures gapped lower overnight and are trading 90 points below the opening price Friday morning. In short, the top is in and the days of King Dollar seem to be over. This follows an emergency 50-bps rate cut earlier this week and projections for ANOTHER 50-bps rate cut at the March 18th meeting are now at 75% according to the CME. Foreign currencies are rocketing higher, led by the euro and the Swiss franc. Safe-haven currencies are seeing an influx of buying as the stock market decline continues. The Japanese yen is this week’s winner, trading above the 95 level for the first time since August. The Swiss also carries some safe-haven qualities. So, what’s next? Probably more of the same. Currency moves this week signal major reversals. A paradigm shift is among us as the major economies of the world are showing clear signs of slowdowns that are being exasperated by the coronavirus. Support in the dollar will not likely be seen until last June’s low of 95.365. Volatility has returned and currency traders should tread carefully as central banks around the world coordinate monetary easing.

USD Mar '20 Daily Chart

Equity - Virus Trumps Jobs

We were warned, by many top economists, that the February jobs report was going to be irrelevant.  The data was collected before the coronavirus outbreak escalated and became a threat to our financial system.  273,000 jobs were added in February while analysts had expected a gain of about 165,000. The unemployment rate fell from 3.6% to 3.5%, matching a 50-year low. Average hourly earnings rose by 0.3 percent the year-over-year gain is now 3 percent.

Chris Rupkey, head economist for MUFG Union Bank, stated Friday morning. “This could be the last perfect employment report the market gets for some time. Net, net, the employment report was nearly perfect in February before the growing economic storm posed by the spreading coronavirus around the country that threatens many industries where the public gathers from movies, to travel, to the airline industry, even shops and malls.”

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.

Coming Up Next Week...

View Futures Calendar