RJO FuturesCast

May 8, 2020 | Volume 14, Issue 19

The Markets

Metals - Will Today's Unemployment Data Help Gold Bulls?

In the early morning trade, gold has given back all its overnight gains and is currently trading in the red at $1,715 an ounce. Before the April non-farm payroll data came out, gold was trading in the $1,730 range and was prone to break out and even test last month’s high of $1,788.8. As I mentioned above, today’s monthly non-farm payroll numbers came out and showed just how paralyzed the U.S. economy is with data showing 20.5 million layoffs in April and the overall unemployment rate is now at 14.7%, which is at its highest level since record keeping began in 1948. To put things in perspective for you, today’s number just erased more than a decade of job growth and are more than double what the U.S. saw in the 2008 financial crisis.

If we look at the daily June gold chart below, you’ll clearly see how gold held the $1,700 handle this week, which is a big victory for the gold bulls. Furthermore, gold is still trading in an uptrend and with today’s unemployment data and speculation on more fed & government stimulus one could say gives the gold bulls another long-term advantage to see higher prices.

Gold Jun '20 Daily Chart
Metals - Silver Battling Jobs Report

The silver markets continue consolidation as risk aversion proves to be the main keynote. Traders in the North American session will be battling a difficult jobs report, and while silver has a significant manufacturing component the charts show a bit of risk on view. The bull camp still very much so seems to be in control here and if the dollar continues its pullback we may see silver test the upper range in its consolidation stage. There has been continued talks on capitol hill by U.S. lawmakers to push for even more stimulus which if done could very well help the bulls here as well.

Silver holds support at the lower range of its consolidation of $14.74 where buyers have continued to step in. The daily stochastics have crossed over which should be bullish and will help in silvers test of resistance at the $15.72 and $16.00 dollar levels. We would like to see this level break for a potential continuation of the trend and would serve as caution for the bears. The next area of resistance remains at $16.33.

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 - Expanded Volatility in Crude Oil

Oil prices have temporarily pared yesterday’s losses following a five-session rally as the overwhelming supply glut has outweighed any recovering fuel demand. This has come amidst a restarting of OPEC+ production cuts and the reopening of economic activity in some states and countries. Saudi Arabia has led with OPEC+ cuts of 9.7 million barrels per day that had begun on May 1 with possible additional measures at the next upcoming meeting on June 10. Adding in the non-OPEC production cuts the total is likely nearing 15 million barrels per day and getting closer to the 20 million barrels per day announced at the initial OPEC/G20 meeting.

April may have been a bottom regarding demand with production cuts continuing to progress. Further OPEC action may be needed at the June meeting with the possibly of extending to the highest level of cuts at 9.7 million barrels per day for the rest of the year (instead of current plans to reduce cuts to 7.7 million barrels per day in July). Although negative territory is unlikely in the June contract, further weakness in the near term is suspected as the June contract heads closer to expiration due to limited cushing storage and inventories near full capacity as well physical delivery at the end of the month. In addition, oil volatility (OVX) remains highly elevated with the market remaining bearish trend with today’s range seen between 9.46 – 28.73.

Crude Oil 'Jul 20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Cocoa Demand: Can We Only Go Up From Here?

As cocoa futures continue to be range bound and ending some recent trading days nearly unchanged, traders will focus on the demand of soft. It is hard to anticipate where prices will be in the coming days, weeks, months or even years as there is too much unknown globally. The demand of cocoa has been weak for a while and there is little current news that could help a push higher in the short-term. The hope is Q3 and 4 will show some recovery in commodities and the equity markets.

For now, expect consolidation, followed by volatility and a repeat of that cycle. The equity market and currencies will be factors in the day to day trade of cocoa. Supply and demand will continue to take a back seat as most areas of the world have taken a step back from purchasing many commodities.

Technically, the July contract continues to hit resistance around 2415, support appears around 2310.

Cocoa Jul '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
Softs - Large Brazilian Crop and Weak Demand for Coffee

While major populations prepare to come back to work, the current weak demand and forecasted questionable demand continue to add pressure to July coffee prices. In addition, there has been news of an extremely large crop forecasted from the largest producer of coffee, Brazil. Our friends at The Hightower Group have reported that “coffee has been pressured by a potentially record high Brazilian crop, and sluggish producer currencies as it has been as it has been unable to lift decisively clear off of its 2020 lows.”

Fresh bullish news in the way of recovering demand will be needed to support coffee prices in the long term, and we should continue to see some volatile swings the near term while we continue to wait out any potential vaccine for COVID-19.

From a technical perspective, traders may note that there is a potential head and shoulder reversal pattern to the downside (see daily chart attached). While these massive swings in coffee prices continue, with questionable demand on the horizon, many traders may benefit from staying in cash for the time being.

Coffee Jul '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 05/08/2020

This week we saw China buy U.S. soybeans, and Mexico buy U.S. corn which is great news for grain exports. We also have a crop report due out next week and we expect to see corn be 70% planted.

Agricultural - China Becoming Active in the Corn Market

It will not take much in the way of positive news to see a significant short covering rally, and this demand news may be the news that is needed to spark this. The USDA reported a sale of 686,000 tonnes of corn to China. The demand news coupled with parts of the Midwest potentially getting frost this weekend are looked at as bullish.  Corn that was planted early is at risk of getting damaged from this late frost.  Stronger energy prices are also something that is being supportive for corn today, with thoughts that ethanol demand will also begin to see an uptick in the near future. All of this being said, if there ends up being no frost, we will still have a very large amount of acres getting planted and expecting massive yields too.  This bounce may be a temporary one if we don’t get more weather issues. Resistance comes in at 321 and 324 with support at 314 and 311.

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.
Currency - Dollar Index Fails at Critical Level

U.S. dollar futures are virtually unchanged Friday morning after April non-farm payrolls decreased by 20.5 million jobs, raising the unemployment rate to nearly 15%, the worst level since the Great Depression. This number was largely priced into markets already, and the report beat expectations by about 1 million jobs. Greenback futures failed to press through the previous swing high at 100.97, which could be a sign that the dollar rally is coming to an end. Inevitably, the unprecedented levels of liquidity being injected by the Fed will debase the USD and inflation will return to the U.S. economy. As the world moves to put the coronavirus pandemic behind us, uncertainty will subside, and the safe-haven qualities of the dollar will take a back seat. Foreign currency futures will thrive in this environment, most notably the euro and emerging market currencies.

USD Jun '20 Daily Chart
Interest Rates - Interest Rates Down After Negative ADP Number

Looking at the June 10-year note this morning, we are currently trading 138-15 which is down 12.5 ticks on the day. We have a high 138-26 and a low of 138085. Economic news this morning showed that the monthly ADP number that came out negative, which the street was expecting, but nevertheless a negative print has not been seen in the markets for many years. What’s very interesting is the fact that treasuries are lower after a bad number, which in my opinion, does not bode well for the entire treasury complex.  When markets don’t act the way they should, traders should be very focused on a possible turning point and the probability of lower prices lies ahead. Another important development that I have been seeing in the last week or so is many of the meat producing plants have been closed due the coronavirus. This has skyrocketed the price of meat and other products that many families consume. That will no doubt cause inflation for at the grocery stores.  If that happens, you could see interest rates start to go much higher than the Fed would like them to, and with 30 million or so unemployed, that will cause a monster problem for families and the fed alike.  Look for the June 10-year to go lower and potentially consider selling rallies.

10-Yr Note June '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 - Horrendous Jobs Number Has Stocks off Early Highs

The non-farm payroll data this morning showed a loss of another 20.5M jobs.  That is a huge number, but the market continues to discount the bad jobs data as if it is just a temporary phenomenon.  The indices were trading at their highest levels since 4/30 leading up to the news (the Nasdaq actually achieved levels unseen since late February). The number did lead to some profit taking/outright selling, but I think you have to be impressed by the market’s ability to hang in there. Who would have thought the Dow would still be up 250 following a number like that? Sentiment continues to be bearish, and I think that needs to approach more neutral/bullish levels before we see any kind of major correction. Even then, I believe the lows are in. The Fed is throwing everything they can at this market.  We can argue about how effective their actions will ultimately prove to be, but the market certainly seems appreciative thus far. 

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.

Coming Up Next Week...

View Futures Calendar