RJO FuturesCast

June 18, 2021 | Volume 15, Issue 24

The Markets

Metals - Huge Selloff in Gold Could be an Opportunity

Well the Fed got the ball rolling with a shift in their stance on inflation and rate hikes. We shouldn’t be so surprised because anyone who watches commodities can see that there’s inflation. It’s only a question of how long that inflation will last. So, if the Fed is willing to discuss that the conditions for a rate hike may be met earlier than previously anticipated, then logic dictates that the Fed has a better chance of NOT letting inflation run away out of control. That’s the part that surprised traders. A little bit of confidence in the Fed. I’m not there yet. I don’t believe that a super cycle in commodities can be stopped. I know that I sound like a broken record here, but there’s just too many dollars out there. The money supply grew by 25% in 2020. Rate hikes are still two years away! Gold took off $100 way too fast and should find some decent support around the $1,765 range. So between the Fed announcement, the Dollar rally and all the technical chart damage to gold, I think that there’s another opportunity to buy gold before the big rally.

Gold Aug '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 - Expect Sideways Movement in Silver

Silver is under pressure this week from a strong dollar. The Fed's hawkish stand from this week's FOMC meeting got metals on the defensive. Currently, silver is at $26.11, up 25 cents. Is that a dead cat bounce? But the chart damage is evident, as seen below on a weekly continuation chart. The bulls will continue to fight to the upside until the Fed actually raises rates. For now, I expect to see sideways to lower price action until the dollar finishes the upside correction. Again, these sideways markets do provide trading opportunities using options. Please reach out to me.

Silver Weekly 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 Slips, but Holds $70

The oil market came under pressure from multi year highs on Thursday as the US Dollar rallied from a more ‘hawkish’ tilt by the Federal Reserve on Wednesday. Oil stockpiles fell sharply by 7.4 million barrels, according to the EIA, as refineries continued to increase operations (US refinery rate at 92.6%), suggesting further improvement in demand prospects. In addition, oil inventories in Europe have reported to have declined by 5.4% last week, lending to the idea of further tightening of global supply.  Also lending support were reports that Chinese refinery throughput rose 4.4% in May from year ago levels. Iran is set to have presidential elections on Friday with the outlook for a flood of Iranian supply coming back online becoming increasingly more fleeting. The market remains bullish trend with today’s range seen between 68.66- 72.87.

Crude Oil Aug '21 Daily Chart
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Softs - Macro Data Controls Market and Cocoa Futures

Cocoa continues its recent downtrend, and this trend was accelerated after Chairman Powell announced a rate hike would come sooner than expected for the US. All markets appeared to take a hit after this announcement. Many agriculture markets were hit the hardest.

Cocoa futures dropped to test the lows put in early this year. The weakened Euro and Pound versus the Dollar hurt the potential of a short-term recovery in the demand for cocoa. Although vaccinations continue and restrictions are lifted, the demand for chocolate has not returned strong enough. Grinding data will continue to be critical.

Weather is also bearish in Ivory Coast. Rains have moved in and have helped the crops which may produced higher output.

Continue to anticipate a stronger global recovery as we head into Q3. If that occurs, look for cocoa prices to head back to 2500. For now, the day to day trade will continue to be volatile and based on macro data.

Cocoa Sep '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 - Selloff in Live Cattle

Yesterday’s market moves were eye opening to say the least with most of the AG markets being down anywhere between 5-7%. The cattle market specifically experienced a massive long liquidation sell-off that was primarily led by other outside market forces. After we get the bookings done for July 4th, beef prices usually trend to the downside but with the year we are seeing this might not happen with demand factors giving this market support. Cash prices are still looking strong and trending higher but traders are expecting a short term downside with the market being in slightly overbought territory and the outside market forces putting pressure on the market. Cash live cattle are trading higher this week. The 5-area weighted average price on Thursday was 123.44 versus 120.00 last week. In Nebraska 1,176 head traded at 124. August cattle closed sharply lower on the session and gave back all of the gains of the previous 2 sessions yesterday and a bit more.

US beef export sales for the week ending June 10 came in at 12,828 tonnes, down from 16,075 the previous week and below the average of the previous four weeks at 19,984. Cumulative sales for 2021 have reached 646,076 tonnes, up from 484,275 a week ago and the highest on record. The five-year average is 462,601. The largest buyer this week was Japan at 4,379 tonnes, followed by China at 3,581, South Korea at 1,707, and Taiwan at 1,217. South Korea has purchased the most from the US so far in 2021 at 175,493 tonnes, followed by Japan at 158,210 and China at 102,402. The USDA estimated cattle slaughter came in at 120,000 head yesterday. This brings the total for the week so far to 477,000 head, up from 476,000 last week and 471,000 a year ago. For the month of May, China beef imports from all locations reached 170,000 tons, up 17.3% from a year ago. This pushed year-to-date beef imports to 970,000 tons, up 18.6% from last year's pace.

Live Cattle Aug '21 Daily Chart

Equity - Stock Futures Down Again Head for Fifth Day of Losses

U.S. stock futures dropped Friday, putting the Dow on pace for its worst weekly performance since the end of January. Futures tied to the Dow Jones Industrial Average fell 0.8%. The Blue-chip index fell 1.9% this week, leaving it poised for its worst showing since it retreated almost 3.3% in the last week of January. This morning also saw the S&P index down .07%. If it continues the benchmark index could see an end to a three-week streak of gains. Nasdaq-100 futures traded 0.5% lower, due to a drop in large technology stocks at the opening bell. Traders are also not as optimistic  after Federal Reserve Bank of St. Louis leader James Bullard said on CNBC that he expects the first Fed increase in late 2022, due to the fact that they have faced more inflation than it expected, and policy makers need to be nimble, he added. But it will take more Fed meetings to organize the debate over reducing its bond-purchase program.

Support today is checking in at 418500and 416500 with resistance 423000 and 424500.

E-mini S&P 500 Jun '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 - 06/18/2021

Good morning,

Reminder: It’s triple witching day with all the Jun Indices set to expire at the open today, so be mindful if you’re still in June Stocks. 

Yesterday’s post Fed action was interesting to say the least.  We’re currently sitting on a big time immediate OB signal in the US Dollar following its ramp on J Powell’s “talking about talking about tapering” lingo. And with an OB USD, we’ve got a slew of immediate OS signals in the commodity space this morning. 

Yields/Stocks:  we got a lot of movement over the past 24hrs in bond yields (10-12bps) but coming into this morning, we’re sitting at 1.48% basically UNCH pre-FOMC meeting. I’m watching the 1.42% level for any signs a near-term Bond yield “breakdown” – but rest assured, bond yields are likely heading markedly higher over the course of the next 6-12months. Maybe the biggest stand out to me was the “flattening of the curve” post Fed where short-term yields rose faster than long-term yields – this is why our 30yr vs 10yr spread missed the mark, but our short 10yr out rights played well. A flattening yield curve usually portends something ominous from a macroeconomic standpoint – this is why it would not shock me to see an immediate-term break down in yields to be honest, followed by an equity correction in July/Aug time period. We’ve seen some commodity deleveraging over the past few sessions, equities may be next.  However, I do still think there’s short-term long side trade potential in the near-term for stocks. Head on a swivel. 

Energy- I’m on the watch for a pull-back here, we will be buyers of Crude Oil if we get that look. Crude -1.00% pre market hovering around 70 BBL. The inflation trade IS NOT OVER from our perspective, but we likely take a pause in Q3 – and I think we’ve made this abundantly clear from our “Shallow” Scenario 4 in Q3 calls. 

Metals- We sent out the Silver buy yesterday, we did have a very small existing long position for the record. We like metals here, specifically IF we are going to see a minor “pause” in the inflation cycle, but inflation OR Stagflation rather, likely reignites again in Q4. If you’re having trouble following my outlook….its a minor slowdown in Q3 followed by a re-start of the REFLATION/INFLATION trade in Q4. Scenario 3 (STAGFLATION) in Q4 is the call – this is where Gold and Silver BULL markets live. We had the STAGFLATION Call on in Q3 of last year, and we saw some pretty materially gains in Gold and Silver during that time period. This doesn’t mean we can’t probe lower in the immediate-term but if Bond yields sniff out a slowdown and begin to back-up, this would make a very strong case for DOWN RATES = DOWN Dollar, UP Gold, UP Silver.  With that said, we could eat some garbage in the near-term – stay small and watch what bond yields do from here.      

Good luck,

*A higher high in the Gold and Silver range is registering as the market squeezes traders that CHASED at the highs. 

*A lot of “yellow” highlights below on immediate OB and OS signals.

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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