RJO FuturesCast

March 13, 2020 | Volume 14, Issue 11

The Markets

Metals - Where is Gold Going Next

In the early morning trade, June gold is trading in the red again and currently trading at $1,575 and continuing it’s more than $120 sell-off from last week’s high of $1,707. With everything going on this week gold should have been a safe-haven, but it was the exact opposite. For example, the Feds coming up with quantitative easing and China stepping up with another stimulus plan as the coronavirus gets more worse throughout the world. Those two actions should of help, but too many people probably had to meet margin calls, so they had to sell their gold. Over time, I believe gold should prop back up as they take effect.

If we look at the daily June gold chart, you’ll clearly see that the uptrend was broken this week and is now in bullish trend. However, forget the technical because the fundamentals are going to drive this market in its next direction.

Gold Jun '20 Daily Chart
Energy - Oil Glut to Remain

After crashing over 30% in the last week amid a broad decline in global equity markets and the US banning travel from Europe on Wednesday following the World Health Organization’s declaration of the virus a pandemic, prices are experiencing a minor corrective bounce this morning. Oil has been under pressure as OPEC and Russia are threatening to flood the market with oil demand growth forecasts continually revised lower and to their lowest in nearly a decade as the four-year effort to curtail supply is set to expire. Both WTI and Brent are down nearly 50% since their January high and had their largest one-day declines on Monday since the Gulf War. The US Energy Information Administration (EIA) and OPEC had already cut demand forecast even prior to the breakout of the virus with expectations of a further contraction in the first quarter. Weekly inventories displayed minimal effect from the virus as stocks increased by 7.7 million barrels with inventories of gasoline and diesel falling. Oil remains bearish trend with today’s range seen between 28.61 – 35.38.

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 - Global Economic Slowdown Could Weaken Demand of Cocoa

As we continue volatility in every market, cocoa continues to move lower. As the May contract tests lows put in at the end of 2019, demand for chocolate could take front stage for cocoa futures. As the NBA, NHL, MLB and most other professional and minor league sports and teams postpone play until further notice due to the Coronavirus, cocoa could be one of the futures most affected. Since chocolate is a good indicator of cocoa demand and it’s sold at many entertainment venues, this suspension of play could affect futures’ prices.

Each trading day appears to be different as more news breaks daily on the virus. As traders try to position themselves in commodities, a close eye is needed. The fundamentals will control most markets in the near-future, the technicals will provide guidance on quieter trading days. Look to see if 2425 holds and if the cocoa and global markets can recover next week.

Cocoa May '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
Softs - Massive Swings in Coffee Prices

Most commodities markets continue to have massive, volatile swings, and May coffee is no exception. A massive short covering rally pushed May coffee prices high enough to challenge the 115 level, and possibly prompt a continued run back to the 120+ highs we saw earlier this month. The Brazilian currency experienced a boost from a dwindling US Dollar, which helped May coffee prices to find support. In addition, there has been reported wet weather in key growing areas of Brazil that have prompted additional long-term support for coffee prices. Our friends at The Hightower Group have reported that “heavy rainfall over Brazil’s Minas Gerais growing areas could have a negative impact on their upcoming crop if they continue over the next few weeks”.

While the markets continue to display unprecedented volatility as the world struggles to cope with the Coronavirus, commodities will continue to find unstable ground as the underlying fundamentals bear little (if any) impact on the overall price action we continue to witness these days.

From a technical perspective, we have been able to hold support above the 99.55 critical low from February of this year, with a subsequent strong bounce to the 116 level. This price action should be viewed as a potential long-term bottom in May coffee, but with the continued uncertainty related to the Coronavirus, we should expect more sideways price action with massive swings.

Agricultural - Grain Futures Update w/Stephen Davis - 03/13/2020
Stephen Davis discusses the latest in the grain markets. While coronavirus has certainly slowed everything, the markets look a little better today. Corn is being planted down south, and we could see the market pull up
Interest Rates - Interest Rates Can't Find a Level, Coronavirus Rages On

Taking a look at the 10-year note, we are currently trading 137.22, up 2 ticks on the day. Overnight we had a high of 138-19 and a low of 137-07. The market continues to take cues from any new developments on the coronavirus and the stock market. On Monday we touched the lowest level in the 10-year based on yield, and the highest price in the futures on record as the stock market tumbled. I believe we all recognize that coronavirus is a pandemic and about fifteen minutes ago the WHO just declared it as such.  What is interesting for traders is that the 10-year note is currently down 2 ticks and Gold down $12, all while the Dow is down 1100 points. It’s a bit confusing why the notes are lower and not catching a bid while the stock market is down big today. My advice to traders looking at the note complex is continue to be a buyer on dips.  It doesn’t look like the virus is slowing down at all. Italy is basically shut down and many universities and colleges in the states are sending students home and will be telecommuting for the near future. The panic of this virus remains and if people are not getting tested as the government suggests, the possibility of continued spread among individuals seems high.

10-Year Note Jun '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 - Coronavirus Sparks Panic Selling in Stock Futures

U.S. stock markets are having their worst week since the 2008 financial crisis. Thursday’s avalanche marks the largest one-day sell-off since 1987. In short, markets are in turmoil due to fears that the coronavirus threat will worsen, and economic activity will grind to a halt. This has been an evolving problem globally, but the effects are being firmly felt in America this week. Schools are closing, and large events are being cancelled as the virus multiplies every day. March S&P futures went limit up Friday morning before selling off again. It looks like more downside is in order as we head into the St. Patrick’s Day weekend. The chances that this virus will simply stop spreading over the next couple of weeks is next to nothing. Certainly, things will get worse before they get better as the market panic would imply. For the long-term investor, this will provide opportunity. But for the bottom-picker, this has provided only pain. Recovery rallies have been unable to hold. Friday morning, the Dow Jones is 26% off its all-time high last month. Testing the 38.2% Fib retracement level would only put the S&P back to Thursday’s high. The takeaway this week – just because it’s cheap doesn’t mean it’s a buy… tread carefully.

E-mini S&P 500 Mar '20 Daily Chart

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