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Oil prices are moving lower on Thursday amidst the landfall of Hurricane Laura in the Gulf of Mexico shutting down oil rigs and refineries. On Tuesday, oil producers had shut down nearly 84% of the Gulf’s production or removed about 1.5 million barrels a day. However, don’t expect this disruption in supply to be longstanding as oil and gasoline stocks remain well above year ago levels. However, to note crude oil stocks have declined nearly 25 million barrels over the last 5 weeks with US exports reaching a 15-week high this week, which should help underpin prices. Gasoline stocks fell and refiners increased production to the highest rate since March, according to the EIA. Expect any disruptions in supply to be temporary with renewed focus on demand prospects. The market remains bullish trend with today’s range seen between 41.88 – 43.85.
The recent rally sparked by a strong US and European stock market has lent some solid support to the September coffee futures. As we continue to struggle with our restaurants and coffee shops being handcuffed to limited revenues by way of limited occupancy, more and more of these cherished businesses will continue to vanish permanently. This sad reality is eminent and although the stock markets have shown signs of optimism, we can expect it will take quite some time to return these businesses back to pre-Covid 19 conditions.
While several States are still struggling with keeping business open, many believe the only way forward will be to actually “move forward” and reopen these restaurants. Traders should continue to remain cautious while speculating, as we await more treatments and ultimately a vaccine that will slowly allow our population to move back to normal. Until that day, expect that coffee prices will continue to suffer volatile swings and major moves. I’ll say it again, until that day when restaurants are permitted to increase their level of capacity (or even remain open), home coffee sales will not be nearly enough to offset the gaping void of demand left unfilled by restaurants and coffee shops. From a technical perspective, a retest of the 122 level should take place over the next week and this upward move will put September coffee prices smack-dab in the middle of a well-defined trading range last seen in April.
USD: With the markets highly sensitive to the outcome of the US Fed reserve chairman’s speech today, it is not surprising to the see the currency markets consolidating early on this week. In my opinion, the dollar is vulnerable to another downward move like what we saw from May to August, especially if the FED maintains its stance today without noting any change in conditions. Basically, there are signs of global recovery and there are also signs of growth in the US, but if we see the FED maintain its support as well as not raising rates, the USD should remain bearish.
Looking at the trade today in the September 10-year note, we have a high overnight at 139-155 and we are currently on the low at 139-005 as of this writing. What’s noteworthy today is that we broke a major moving average, the 50-day at 139-11 and approaching another key moving average in the 100-day which currently lies at 138-30. This key moving average held twice in the last month on August 13th and 14th. If we pierce this level again, watch out below as the trend will firmly be on the downside. Traders will be watching close on Thursday as Fed Chairman Powell will speak at the Fed’s annual Jackson Hole conference, albeit virtually. He will most likely talk about rates and inflation. If he happens to discuss the possibility of not keeping rates at zero or if he sees the slightest move up in inflation, one should expect fireworks in both treasuries and stocks. The main catalyst for the monster move up in stocks has been the continued talk of rates being kept near zero, which in turn make stocks the most attractive investment that’s available for investors.
The S&P and Nasdaq were underwater heading into Fed Chair Jerome Powell’s statement from Jackson Hole, Wyoming. During the speech, we saw a nice rally, but it has quickly faded. The big takeaway from the speech was that they will allow inflation to run above their stated target rate of two percent. Their new policy will be one of “average inflation targeting.” In other words, following periods where inflation is running below their two percent goal, they’ll allow it to run above two percent for a given period to average two percent. He also cited the risks that extended periods of low inflation can present to the economy, acknowledged that the Fed has been unable to achieve their two percent target, and reiterated that they remain firm in their belief that two percent is the ideal target rate.
*Commodities, Commodities, Commodities – The commodity rally is broadening vs the equity rally. Agriculture joins the mix with Corn and Soybeans +3.00% and Soybeans +0.73% and +3.2% on the week. Metals caught a strong bid yesterday, consolidating gains this morning.
*Key events today include US Jobless Claims and Q2 GDP (2nd estimate) due out at 7:30am CST
*The highlight of today with Fed Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium at 8:00am CST
-Powell largely expected to move the goal posts on the Fed’s 2% inflation target, allowing inflation to run a little above expectations
-Largely expected to have a “lower for longer” outlook on interest rates
*Commodities broaden their rally as Agriculture prices begin to climb
*US is largely in a holding pattern this morning, following another record day in the SP500 and NASDAQ
*Europe traded lower across the board in the overnight led by the IBEX in Spain -0.84%
*China’s Shanghai Index is up +0.64%
Top Market Movers Overnight
*Soybeans continue their climb to 931’0 bushel – remain bullish of US Farm Products. 950-960 remains and upside target for beans in coming weeks – well done
* Lean Hogs are in a developing “bearish to bullish” transition. Oct Hogs are trading at 55.575 with immediate upside potential to 60-62.50
*Agriculture markets begin to price in the prospect for Chinese demand as the key driving force behind the rally
*Gold and Silver staged strong rallies yesterday – consolidating those gains this morning ahead of Fed Chair Powell’s speech
*Gold has potential to re-test 2000-2020 in coming weeks
*We still largely contend that both Gold and Silver remain largely “range bound”, and that traders should continue to hold a bullish bias
*Laura makes landfall, but has been downgraded to a Cat 2 vs yesterday’s Cat 4.
*Crude Oil and RBOB trade lower as its being reported western Texas Oil operations are likely to continue
*Energy is likely to fall into a “buy pocket” before another test of higher levels. Long side trade still
*Natural Gas, similar to Energy – looking for a 2-3 day correction before a window opens for a Long side trade
You must have Commodities as a part of your portfolio as Powell looks to run the economy and inflation “Hot” in coming quarters. A weaker Dollar and a “lower for longer” outlook on interest are contributing factors to our commodity outlook, along with an improved economic backdrop over the next 12 months, specifically in China (The World’s largest consumer of commodities).