RJO FuturesCast

July 23, 2021 | Volume 15, Issue 29

The Markets

Metals - Gold Needs to Embrace Inflation

Gold is another example of how the Fed’s over extended easy money policy has created government dependency. Gold traders are still not willing to embrace inflation. As the price of just about every other raw commodity has rapidly increased in cost, gold has been a reluctant participant. The dollar strength hasn’t been supportive for sure but gold traders seem more fearful of a rate hike than anything else. In fact, gold couldn’t rally on a big risk off earlier in the week either. Late last week gold failed to break out above the $1,835-$1,840 range. So, to say that I’m disappointed in gold’s recent performance is an understatement. We will see if gold can find value in the range around $1,800. A dip closer to $1,885 is not out of the realm of possibility either. I remain long term bullish on the yellow metal. Remember the money supply is at all time record highs. In 2020 alone, we added 30%.

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 - Silver Not Closing Strong

The September silver market started the week continuing the slide lower from last Friday’s drop. The market seemed to find some support around the $25 level but isn’t closing out the week strong with lower trade today after posting a mid-week high of $25.51. The bears definitely hold control both technically and fundamentally. US economic data weakening, showing signs of a slowing economy, and a push higher in the US dollar has deflationary talks increasing. Currently, the silver market is failing at finding anything to send it higher and traders are also losing interest. ETF holdings in both silver and gold have continued to decline in the past couple of weeks. Bulls will need to see the $25 level hold and a push back to and eventually above the sideways range from $26-$26.50. Failing to hold the $25 level would see a push back down to $24.

Silver 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 therrmann@rjofutures.com.
Energy - Oil Demand Set to Outpace Supply

Oil prices are taking a breather after rebounding from their precipitous drop earlier in the week as supply is expected to remain tight as global demand growth continues to recover. This comes amid an agreement by OPEC+ to add 400k barrels per day from August through December. Crude stocks increased for the first time in eight weeks with a build of 2.1 million barrels coupled with a jump in crude imports from Mexico as well as a decline in the refinery rate (but still above five-year refinery average), according to the EIA. The market has largely discounted the impact of the delta variant as well as residual strength in the US Dollar as oil volatility (OVX) has come off trend resistance falling to the mid-30s. The market remains bullish trend with today’s range seen between 66.83 – 77.17.

Crude Oil Sep '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Frost Damage Could be Significant for Coffee

Fears of producer defaults on contracts for this year’s crop helped to push the coffee market 8% higher on the opening, as losses could be significant and tree recovery may take up to years to recover. Loss estimates are very speculative at this point. Coffee’s upsurge continues to gain momentum as prices have risen over 23% in value over the past 3 trading sessions. While the market appears to be heading for even higher price levels, coffee is already well into technically overbought levels and is vulnerable to profit taking. Indications that this week’s frost in Brazil regions led to significant damage to coffee trees has fueled coffees move higher this week. The gap up on the chart is a bullish indicator. First support hits at 185.90 and below there 175.15. Resistance comes in at 201.40 and then up at 206.00.

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.
Agricultural - Grains - Consolidation Continues

Over the last week, corn, KC wheat, and soybeans have continued to consolidate. September corn did manage to make a higher high and a higher low on the weekly chart. At the time of writing, Sept corn is trading within a .01 of last week’s closing price and the majority of trading action this week has occurred between the 9- and 20-week moving averages. I would suggest traders prepare to play a breakout. The fundamentals haven’t changed much, the hot and dry mid-west weather has continued to be front and center. The weekly range for September corn, .30 ¼ cents, is the smallest range we have seen in the last 4-months. Historically, we usually see corn pull back around this time of year but so far that hasn’t been the case.  Watch for Monday’s Crop Condition Report to see if the Good/Excellent rating for corn slips again which I think is very possible.  This should help set the tone as the market looks for a fundamental catalyst.

I would suggest using an option strategy to manage your futures position risk or an outright option strategy. Implied option volatility is still relatively high compared to historical vol levels. You may want to incorporate some short options into your strategy in a calculated risk manner such as bull or bear option spreads. I have 25 years of grain market experience, please feel free to call me at 1-800-367-7290 for more details or to discuss in depth trading strategies. Also be sure to check out my past weekly grain market updates posted on our website.

Corn Sep '21 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 msabo@rjofutures.com.
Interest Rates - Delta Variant Impacting Interest Rates

Looking at the September 10-year note, we have had a wild ride in the last week with a new high for the move coming yesterday at 135-07 and yields touching a new low for the move at 1.12. Currently, the note is trading down 25 ticks at 134-01 and yields rising to 1.29 as of this writing. The big move in volatility is due to the market thinking that the new delta variant is going to hurt the U.S.  economy, but more importantly, slow down the world economy. We are not only seeing major upticks in Europe, but the U.S. as well. When the pandemic started in 2020, the U.S. was behind Europe in spreading of the virus by about 2-3 weeks. Now the key going forward, does the world economy go on another lock down or do we continue to re-open and have another mask mandate? My overall feeling is that the world economy will continue to re-open but will remain vigilant. Treasuries have been the major beneficiary of recent stock weakness but as we all saw yesterday, stocks roared back and are having another strong day to the upside. The last two days feel like we had a major short squeeze in notes and have come down in price very quickly. The market feels to me, that as bad as this variant might be along with its ease of transmission, I think it is just another temporary setback in another wise very explosive economy.

10-Year 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 - New ATH in Nasdaq

Monday’s selloff has quickly been forgotten as the indices are pressing their highs.  The concerning rate at which the Delta variant has been spreading spooked markets, but fears of lockdowns are subsiding as we learn more.  The Dow and S&P fell just ticks short of printing new all-time highs in the premarket, while the Nasdaq managed to top it’s previous mark.  Earnings season is once again upon us, and the data has been strong.  While it is easy to be optimistic about the coming releases, investors have plenty to be concerned about next week. 

The two-day FOMC meeting will be the star of the show.  The committee members have been getting more hawkish with each meeting.  Traders will want to see if more members continue to shift towards tapering sooner rather than later.  Consideration of the Delta variant was cited in yesterday’s ECB commitment to keeping rates lower for longer.  Lagarde mentioned that the new variant is likely to have a pretty dramatic impact on the recovery of industries like travel and hospitality.  Perhaps we hear something similar from Powell on Wednesday. 

Other releases of note will be Monday’s housing data, Quarter 2 GDP on Thursday, and Personal Income and PMI on Friday. Friday’s Personal Income release is when we’ll see the PCE data, which is the Fed’s favorite measure of inflation.

E-mini Nasdaq 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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