RJO FuturesCast

July 9, 2021 | Volume 15, Issue 27

The Markets

Metals - Golden Cross in Gold?×

Look for gold to take a breather before the next leg up. It will not take much in terms of a rally to cause the 50 DMA to cross through and above the 200 DMA. Gold needs to push thru the $1,820 level and we should quickly be challenging the $1,850 range. At that point traders will start looking at a “Golden Cross”. The “Golden Cross” is a very strong buy signal in gold. We do need to see a close above $1,820 for some confirmation that the gold rally is going to follow through. The US Dollar and of course the Treasury yields are markets that you must pay some attention to. I’m somewhat surprised by the recent big move down in yields. I think rates need to move higher over time and that inflation is unavoidable regardless of rate hikes. Inflation will be the catalyst that takes gold back above $2,000 and beyond to new all-time highs.

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.
Energy - Oil Rebounds Following Inventory Decline×

Oil prices have rebounded off their Thursday low following a greater than expected draw in both oil and gasoline inventories. Oil inventories fell -6.9 million barrels for the seventh consecutive week with gasoline inventories falling l -6.1 million barrels despite a refinery utilization rate of 92.2%, suggesting strong domestic demand ahead, according to the EIA. This comes amidst a fallout in discussion within OPEC+ as the market continues to assess global oil supplies with disagreements regarding output between Saudi Arabia and the United Arab Emirates continuing to persist with a third of UAE’s production now sitting idle – more than any other OPEC+ nation. This is coupled with the prospect of more Iranian oil coming back online as economic sanctions could potentially be lifted in exchange for nuclear restrictions.  Concerns regarding a resurgence of the coronavirus and the Delta variant remain as Japan declared a state of emergency prior to the start of the Olympic games. The market remains bullish trend with today’s range seen between 71.49 – 75.85.

Crude Oil Aug '21 Daily Chart

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Coffee Approaching Oversold Levels×

Coffee prices have fallen more than 10% from last weeks highs, as the market has seen an abrupt change in tone since the start of the month. While it may still have a bullish supply/demand setup for the longer term, it could remain on the defensive this week if the risk off mood persists. September coffee had another range down move on Tuesday and fell to its lowest levels since May. A pullback in the Brazilian currency to a new 5 week low, added to the woes as that could encourage Brazilian growers to aggressively market their product overseas.

The market is back below the 60-day moving average and suggests the longer-term trend could be turning down. The markets close below the 9-day moving average is an indication the shorter term trend remains negative. Resistance comes in at 15125 and 15565 while support is at 14510 and 14325.

Coffee Sep '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.
Interest Rates - Rally in the 10-Year Note×

Looking at the September 10-year note this morning, we have seen the rally continue with note trading as high as 133-225 and a low last night at 133-065.  As chairman Powell has suggested all along he believes the rise in inflation that we have seen in the past few months, including the big rise last month in the CPI index, should subside and he continues to see the push higher in commodities as transitory. We have certainly seen the price of grains fall back rather substantially. Lumber, which was making all-time highs two months ago, has given back at least half of its gains. Another market that has been on a tear lately has been the price of oil with WTI for August hitting $76.98 a barrel yesterday. This are ongoing talks with OPEC+ about the hope of pumping more oil to halt this commodity from getting out of control.  As of yesterday, a few countries are having a hard time agreeing on the amount of production increases there should be and due to the inability to come to an agreement we saw the big spike yesterday. Currently, we see Aug trading at 7180, so were down about $6 from yesterday’s high. Hopefully OPEC will get a deal done soon as something may be in the works behind the scene.

10yr Note Sep '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or gperlin@rjofutures.com.
Equity - Stocks Rebounding×

Following yesterday’s selloffs in equity futures, the markets are recovering nicely.  The Nasdaq is down slightly as we type, but the Dow (+418), Russell (+37.70), and S&P (+32.75) have all recouped all of yesterday’s losses.  Plummeting yields, renewed Coronavirus fears, and potential government crackdowns on banks and big tech were largely to blame for the yesterday’s selling.  All of those concerns seem to have been forgotten as we head into the weekend, but it is fair to argue that we’ll need some more bullish news for this rally to continue.  The Fed on Wednesday expressed some concern about the pace at which the economy is recovering.  Much of that can be attributed to labor shortages and supply disruptions.  Labor shortages should begin to correct as benefits expire, but the supply disruptions will likely take a while to get back up to speed. 

Next week’s news slate is relatively light, but we’ll get a few gauges on inflation with CPI and PPI coming out Tuesday and Wednesday, respectively.  It should however be noted that the Fed cares much more about PCE, which won’t be announced until the 30th.  We’ll also have a two-day FOMC meeting that last week of July, and traders will be anxious to see if any more FOMC members have shifted towards tapering sooner rather than later. 

E-mini S&P 500 120 Min 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.
Economy - Futures Market Insight w/John Caruso - 07/08/2021×

A notable development yesterday was a POSITIVE momentum shift on the WEEKLY chart in the US Dollar Index. Not a favorable development for commodity bulls in the intermediate term I’m afraid. The US dollar and bond yields have essentially been moving in the opposite direction of consensus and this coupled with the flattening of the yield curve recently, we think this is foreshadowing a period of risk off developing in macro. Furthermore, our technical view of the energy space is beginning to sour in our intermediate term outlook. Now, that doesn’t mean we won’t take a shot at a long side, likely short-dated trade in Crude Oil, as a matter of fact we’re close to pulling the trigger here. Momentum indicators remain positive in all time frames, an OS reading of 10 this morning, and we’re closing in on the low end of our range.  We still think following a corrective period, energy prices could be a strong buy into year-end.

Fed Minutes and Bond Yields:

The FOMC Minutes expressed some anxieties over tapering QE purchases. The likely starting point will be pairing back their mortgage backed securities purchases in an attempt to cool off the burning hot real estate market. The next 2 Fed meetings, including the Jackson Hole Forum, will likely express a better a time line of the taper.  Regarding bond yields, what I do know is this. The US Treasury is set to bring $821B new bond issuances to market in the Q3 2021 – and purchase $240B worth via QE operations. This is opposed to the $280B new bond issuances in Q2, of which the Fed subsequently purchased … $240B worth. Now, doing the first grade math, that’s going to leave a boat load of excess debt just sitting out there up for grabs … at negative real rates too mind you. I’m having a hard time fathoming there could be any sort of demand to purchase long dated debt at meager rates of return, and when adjusted for inflation - a negative rate of return. In my belief, the flood of excess debt carrying meager to negative rates of return still makes purchasing US Treasury Bonds the worst long-term investment on the board, but even still…watch out for the squeeze. 

USD vs EUR Outlook:

US Dollar:

- the dollar could easily correct from here, but it’s likely a buy on the next corrective set-back. 

-Momentum has now moved to positive on the weekly

-if we embark on Scenario, the USD is an overweight long position in the model.

-USD is tracking yields lower this morning, but like the falling 10yr yield – we don’t think this lasts

-The Fed is leaning Hawkish

Euro:

-the ECB went dovish (pledged more PEPP at their mid-June meeting)

-the ECB also sounds more like the Fed circa Q3/Q4 2020 – pledging to let inflation “run hot” and above their 2% target for a period of time. BEARISH EURO

-large topping formation and momentum has downshifted to NEGATIVE on the weekly

We’re in the “witching hour” of markets in my opinion.  Trapped between cycles, and the current cycle is likely not going out without a fight. Earnings season is coming upon us, and we still think Scenario 2 continues to fight for more upside in equities and commodities in the near-term. Pay attention, and keep your profit and risk parameters tight – cash is not a terrible option either.

 

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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