RJO FuturesCast

August 23, 2019 | Volume 13, Issue 34

The Markets

Metals - Get Your Popcorn Ready with Gold

In the early morning trade, October gold is slightly up trading at $1,508 an ounce and trading near six-year highs. Surprisingly, when China announced this morning that starting on September 1st they would start taxing U.S. crude oil imports by 5%, gold didn’t catch an immediate bid off that news. However, Fed chairman Jerome Powell is making remarks shortly from Jackson Hole as the markets wait patiently to see how aggressively he will guide on interest rate cuts, which are expected to happen in September at 25 basis points.

If we look at the daily October Gold chart, you’ll clearly see the strong bull market that the shiny one has enjoyed since late spring/early summer. There is strong support between $1,485-$1,450, so watch for the bulls to buy on pull backs in this area. The August high of $1,539.5 will be a key resistance area and if the market can get above that level and with all the uncertainty going on currently, which is mostly being caused by the media, then we can’t rule out a rally up to $1,600-$1,700 an ounce by the end of the year, which many professionals are predicting, but they are also quit often wrong. We’ll just have to wait and see, but as pro football HOF Terrell Owens says, “Get Your Popcorn Ready”. 

Metals - Silver Futures, Looking for Some Direction

The silver futures market is in a consolidation mode. A choppy, sideways trading range between $16.80 and $17.25…roughly. This is where the market finds value until we get some direction from the Fed or the economic data. This holding pattern is still a bullish pattern. Likely just a pause before the next leg up towards the recent spike high at $17.50 and then off towards $18.00! But you know how it goes, a bull market needs to be fed a steady flow of bullish news. Additional rate cuts would be bullish for metals.

The only confusion or question now comes from “what will the Fed do”? The U.S. economy is doing pretty good and the “data” supports this statement. So, does our economy need more easy money stimulus? The answer in my opinion is no! Herein lies the problem. The global economy’s health relies heavily on the strength of the U.S. economy. We must keep our economy strong enough to lift or at least lend some support to most of the globe.

That is why I believe that the Fed will continue to reduce rates. That is where the silver market will get its catalyst to move towards $18.00. The Fed’s decision to cut rates again will give upward direction to precious metals.

Silver Sep '19 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 - Crude Oil Approaching Daily Averages

Thursday morning’s trading has the October 2019 Crude oil contract trading near $56.18, up $0.50 on the day as the market continues its strength since the August 7th low. The market is also approaching the 50, 100, and 200-day moving averages and traders may note if these act as resistance or support in the near future.

The market has weighed several factors, including:

  • continued saber rattling from Iran
  • record production from the U.S.
  • draws from inventory featured in yesterday’s E.I.A. report
  • global economic health – outside markets

Moving forward, the market should continue to weigh these factors in addition to further developments. Should the market trade past the averages pictured in the chart below, there is the possibility that the market trades toward the upper end of its range, especially considering a potential double bottom the June and August lows. Should the market remain below the averages, it is not difficult to imagine the market re-testing the some of the years lows.

Crude Oil Oct '19 Daily Chart
Energy - Natural Gas Trading Sideways...For Now

Natural gas for October is trading sideways right now. A slight uptrend had taken place until it flattened out today. If we can break yesterday’s high the uptrend will continue. Today’s pivot number is $2.173 with $2.160 and $2.140 as support numbers below. Overhead resistance looks like $2.190.  Above that, $2.203 to $2.263 should be the next trading range higher. Momentum studies seem to be around mid-levels but trending higher. Prices should accelerate in the direction of these indicators. MACD and RSI look to be trending up.

Weather for the upcoming week looks good as cooler temperatures than previous weeks are expected.  This may put damper on the bull market. We are getting to the end of the cooling season and the heating season is not yet in effect. Demand can be decreased by an economic slowdown as well. The EIA storage report estimates a build of 57 bcf. If today’s number surprises by being larger, $2.050 may be breached, but the path of least resistance remains up.  On the other hand, a smaller number than the forecast will drive the market higher.

Nat Gas Oct '19 Daily Chart
Softs - Rebound in Cocoa

Cocoa’s main stories have been on repeat this year – supply/demand, global uncertainty, and grinding data, have created volatility in the futures. This recent sell-off, mainly from the lack of demand, Asian demand, due to the global trade tensions have finally caused cocoa to reach oversold levels. A recovery should be on the way. Global equities have comeback slightly, currencies have given softs a little push higher as well. Grinding data is coming in mixed. If resistance levels can be broken, 2280 – look for a move above 2300. The recent equity trade in the U.S. markets, as well as overseas could turn any market around as we saw over the past few weeks. Technically, look at moving averages for guidance in the short-term.

Cocoa Dec '19 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 - Coffee Finding a Bottom?

Coffee prices continue to resume a downtrend that has been in place since July 5th. However, with the U.S. dollar now facing strong resistance at the 9900 level, and a potential double-top reversal down, the Brazilian currency is finding some good support and thus we may likely see a bounce in coffee prices in the near term.

In my last article, I noted that our friends at The Hightower Group had reported that “Vietnam’s Central Highlands growing region is forecast to receive 20% to 40% less rain than normal this month, with temperatures expected to be slightly above average.” These weather concerns in Vietnam have not seen much reported improvement and may also continue to help support higher coffee prices.

There may likely be a strong case for a key reversal up. Yesterday’s low of 8960 sparked strong buying support, which pushed September coffee to end on the day’s highs. Subsequently, we’ve seen a strong overnight rally, with momentum levels trending higher and diverging from the falling price action. This could signal a strong move higher in the near term.

Coffee Sep '19 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 8/23/2019

RJO Futures Senior Market Strategist Stephen Davis discusses the grain futures markets.  If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7181 or sdavis@rjofutures.com.

Agricultural - Without Demand in Corn, Lower Yield and Harvest May Not Matter

Increasing trade wars are a bearish force in the grains this morning, and this is helping spark more long liquidation. Disappointing yield results in the Pro Farmer crop tour helped to support yesterday, with every state coming in lower than the USDA projected on August 12th. Iowa came in at 182.8 compared to the USDA 191 estimate and Illinois came in at 171.2 compared to USDA estimate of 181. Iowa and Illinois are typically two states we can count on raising yield estimates, but if these numbers are accurate from the Pro Farmer crop tour, then I expect to see that 169 avg yield be revised in the next report. Weekly export sales for corn were below average coming in at 119,300 tonnes for the current marketing year and 301,600 for the next marketing year for a total of 420,900 tonnes. As of August 15th, cumulative corn sales stand at just 9% of the USDA forecast for 2019/2020 marketing year vs a 5-year average of 17% at this time. Support is seen at 366.75 and resistance at 374.25.

Corn Dec '19 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 - Bonds Continue to Signal Deceleration in Growth

U.S. government bond prices moved lower for the second consecutive session on Thursday, following a contractionary economic print as ISM manufacturing fell below the 50.0 threshold for the first time since September 2009. This comes amidst a seventh consecutive month of contraction for Germany and only further reaffirms the current manufacturing recession in the Eurozone’s largest economy. This recent data print is coupled with a preliminary report that the economy added over 500k less jobs between 2018 and 2019, which would be the largest revision since 2009. This confirmation of a deceleration of domestic and global growth was only reaffirmed by a brief inversion of the 2-year/10-year treasury spread, with outlook concentrated on Fed Chairman Powell’s speech at the Jackson Hole symposium on Friday. While Powell is expected to preface with an update on the continued risks to trade and growth, the focus will be on expectations of further adjustments by the Fed in September. As growth continues to decelerate look for yields to continue to trend sideways to lower with the current range on the benchmark ten-year yield seen between 1.47 – 1.74. 

U.S. 10-Year Yield Sep '19 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.
Equity - Stocks Showing Signs of Strength After Powell Speech

It took a bit, but stocks are rallying following Fed Chairman Powell’s comments from Jackson Hole, Wyoming.  Prior to his remarks, stocks were down quite a bit.  The overnight weakness can be largely attributed to news that China announced a new round of tariffs on U.S. products.  The tariffs will be placed on our agricultural products, beef, and pork. Considering that they haven’t been buying our products of late anyway, I’m not terribly sure this changes a whole lot. 

Powell once again said, “We will act as appropriate to sustain the expansion.” He also menitoned that the economy is in a good place, but that significant risks still exist. He feels inflation is moving closer to the goal of 2 percent, and he’s concerned about a global slowdown. Ultimately, it appears we’re still on track for another cut next month, he provided no other details directly related to rates. The rest of the day’s news slate is pretty slim, but next week’s should provide some excitement. The highlight of which being Thursday’s GDP reading. 

E-Mini S&P 500 60 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.

Coming Up Next Week...

View Futures Calendar