RJO FuturesCast

April 9, 2020 | Volume 14, Issue 15

The Markets

Metals - Gold in a Strong Uptrend

In the early morning trade, after a dismal two days, the shiny one has rallied hard back above $1,700 an ounce and is now currently trading at nears session highs of $,1728. This morning’s jobless claims beat estimates of 5-million coming in at 6.6 million people filling for unemployment in the last week. Yesterday, the Feds released their minutes from the March meeting, which basically states that they will leave rates near zero until the U.S. shows signs of a recovery and should surely help to continue to propel gold to even higher prices. Furthermore, the gold bulls, should enjoy news of 450,000 gold miners being sent home in South Africa and could take them 3-4 weeks to get production back up and slowing gold production down this month by more than 20%.

If we take a quick look at the daily June gold chart, you’ll clearly see that during the pull back this week that it held the highs of the week and the bullish trendline along with nearing the highs of the week and flirting with closing at the highs of the week. I’m not sure how many traders/investors alike will want or feel safe going home short gold.

Gold June '20 Daily Chart
Metals - Bulls Hold the Edge in Silver

The markets continue to react to signs that COVID-19 might be plateauing in the world, but the ripple effect has and will continue to hurt the economy. The North American session will begin with the weekly initial jobless claims which continue to be on the higher end of estimates. While the silver market may not be showing as impressive gains as gold, the charts are positive and the possibility to see silver trade above $16.00 seems to be something we can’t rule out. The action by U.S. lawmakers to push for additional loans and monetary stimulus has helped the bull case, it should also be noted that silver ETFs added an estimated 8.1 million ounces of holdings bringing net purchases just shy of 50 million ounces.

Silver has been on a bullish uptrend since hitting its low of 11.65 in March. We saw initial resistance at $14.74, which caused Silver to trade in a tight range between $14.00 and $14.74 before breaking out to the upside as selling pressure relieved and buying pressure commenced. A pullback to $14.75 maybe healthy and would also allow people to use this a “load zone” otherwise if we can break $16.00 we could see a leg higher without a pullback. 

Silver Jul '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 - Crude Oil Assessing Production Cuts

Oil has continued to press higher after surging over 11% yesterday as prices weigh the potential of market driven cuts amid the fallout from the massive demand destruction from the coronavirus. This comes amidst a record build in weekly stockpiles of 15.2 barrels (EIA) as refiners pulled back operations to the lowest since 2011, which was in part offset by the highest production decline since September. Oil has garnered support under the pretense of impending production cuts that would reduce global output by about 10 million barrels a day. However, the agreement has yet to be solidified as Russia remains doubtful of American contributions. In addition, reports are that Moscow and Riyadh are in continued disagreement regarding baseline and volume for the cuts. The world’s largest oil producers will meet Thursday and Friday in an effort to curtail the flood of crude which, seemingly, may not be enough to offset this demand loss. Moreover, energy ministers from the G-20 are set to meet in a video conference on Friday in order to ‘ensure stable energy markets and enable a stronger global economy.’ Again, oil levels may continue to remain imbalanced provided deeper than expected cuts as storage levels would continue to be saturated and eventual production shutdowns needed as distressed producers continue to move physical and spot prices lower. The market remains bearish trend with today’s range seen between 17.62 – 29.92.

Crude Oil May '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Coronavirus Still Controls Cocoa Trade, Demand Concerns Deepen

Although the May cocoa contract appears to have made the turn higher, it may be short-lived. After a few weeks of consolidation during the recent volatility, the May futures contract has turned higher trading above 2400. This move has followed a positive turn in the equities market. As the world continues to brace for more Coronavirus cases, the market feels as if small positive signs may be headed our way. Although no one knows how long these recent changes to everyone’s lifestyle will last, the health industry and government continue to make efforts to work together and make life safer again. Although we are far away from being “normal” again, small steps are needed to get there.

Cocoa does not have its own demand to help this move have any follow-through. There are many changes to deliveries and ports are closed causing the supply chain to be affected. Until there is more known about this virus, the softs and food markets will be trading off day to day news and updates.

Continue to monitor the market closely, if any breaking macro news occurs, it could send cocoa futures in either direction. But technically, the chart is showing traders cocoa wants to break out to the short-term highs we saw just a month ago.

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 - May Coffee Showing Strong Support

May coffee has been able to hold support above the 116 area, which should be good news for those traders with bullish bias, this recently rally mostly on the back of limited supplies in Brazil, and ongoing issues earlier related to a lack of shipment delays. Our friends at The Hightower Group made a great observation regarding people still have demand but that demand has shifted from people drinking coffee in restaurants, to that of people drinking coffee from home instead. Regarding this shift in demand, The Hightower Group reported that “coffee’s demand outlook has been resilient as stronger supermarket sales have offset lower restaurant and coffee shop sales.”

We continue to see strong levels of volatility as the world continues to battle the COVID-19 virus. Commodities will continue to “price discover” aggressively, as the underlying fundamentals swing back and forth with massive volatility.

Coffee May '20 Daily Chart
Agricultural - Corn Seeing Some Support from Brazil

Although the corn market remains in a downtrend, dry conditions in Brazil’s southern growing region over the next week have supported corn prices. On top of that, crude oil prices remained stronger despite the bearish number in the EIA report, this also supported corn as it leads traders to expect higher ethanol demand. Traders see todays ending stocks coming in near 2.004 billion bushels as compared with 1.892 billion in March.  Ethanol production for the week ending April 3rd averaged 672,000 barrels per day.  This is down 20% vs. last week and down 32.9% from last year. Total ethanol production for the week was 4.704 million barrels, which was the lowest weekly productions reading since May 2009.

China import demand was revised higher to 4 million tonnes, up 1 million from last month and China has already booked more than 1 million tonnes from the U.S. Support for July corn comes in at $3.33 and resistance comes in today at $3.46 and then $3.49.

Corn Jul '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 - 04/09-2020
RJO Futures Senior Market Strategist, Stephen Davism discusses this weeks moves in the grain futures markets. The coronavirus is heavily impacting worldwide grain demand and it's hard to see where the market will go from here
Currency - Inflation Will Return When the Dollar Inevitably Breaks

U.S. Dollar Index futures are 57 points lower on Thursday morning as foreign fiat futures are green across the board. Emerging market currencies, like the Mexican peso and Brazilian real, are notable leaders. It is not surprising to see the dollar trending lower, as this morning (and for the last few weeks) the Fed has injected unprecedented levels of liquidity into US economy. Keep an eye out for the Fed minutes being released later today. Which currencies have the most to gain when the greenback inevitably breaks? European currencies are the classic alternative. However, the ECB will be working to debase the euro with high levels of stimulus as well. Emerging market currencies will likely observe relative strength should the dollar weaken enough for inflation to return to the general economy. Higher commodity prices (i.e. inflation) often help to support the domestic currency where those commodities are produced.

USD Jun '20 Daily Chart
Interest Rates - Interest Rates Down Amid Stock Rally

The treasuries have been acting like your typical safe-haven in the last week as the coronavirus has been spreading and death rates in the U.S. are continually rising.  Yesterday, however, we saw the rate of new cases fall and that led to some optimism that this deadly virus might be slowing. Hence, we saw a big rally in the stocks yesterday and that has continued into today, although stocks are higher this morning, they are way off the highs. Currently, the ten-year note is down 23 at 137-22, seeing a high made last night at 138-15 and a low this morning at 137-19. Hopefully the virus is contained, and people are safe as soon as possible.  

Traders should be aware that the economy has been damaged from this unfortunate outbreak and must remember that last Thursday we saw 10-million new people file for unemployment. There are going to be long lasting ripples in the economy as most companies have been shut down for a month, so I would not expect the stock market to enter a new bull phase anytime soon. As we move forward, I would expect we see lots of volatility in both treasuries and stock alike, but I would not expect much more in the way of downside in notes, simply because of the immense damage we have seen in the U.S. economy.

10-Year Note Jun '20 30 Min 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 Ripping on News of 2.3 Trillion Dollar Stimulus

The market looked poised to take a bit of a breather in the early going this morning. The E-mini S&P futures were on their lows just 10-minutes prior to a horrid jobless claims reading of 6.6M.  I’m not suggesting that anyone was surprised by that figure, but one would think that such a number would start to apply the brakes on the rally we’ve seen over the past couple weeks. That very well may have been the case, but the Fed came to the rescue yet again with news of a stimulus package totaling up to $2.3 trillion. The markets discounted the jobless claims data and printed new highs for the recovery on the announcement. 

The move has taken the E-mini S&P futures above the 50% retracement level of 2785.75 for the June contract.  We can argue about the sustainability of this rally given what are likely to be lasting effects of this shutdown. One thing that’s for certain though is that it’s awfully tough to fight the Fed and the kinds of measures they’ve taken.  Markets are closed tomorrow.  Please continue to be safe, and enjoy your long weekend. 

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

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or bdixon@rjofutures.com.

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