RJO FuturesCast

October 4, 2019 | Volume 13, Issue 40

The Markets

Metals - Are The Bulls or Bears in Charge of Gold?

In the early morning, December gold is trading down today and off its overnights highs due to a decent jobs number today along with the unemployment rate falling to a record fifty year low of 3.5%. Furthermore, gold couldn’t hold on to the gains from yesterday even with a weakening dollar and global uncertainty, which could put the gold bulls on edge. However, if this farce of an “impeachment inquiry” continues to get out of hand, then the bulls might continue to stay in charge due to investors’ fears. Once again though, with today’s solid jobs number watch for the bears to pile in a try and drive this market below $1,500 a troy ounce.

If we take a quick look at the daily December gold chart, you’ll clearly see the that it’s been in a range for the last few weeks, which has made a systematical triangle pattern. The support will be the last and October low of $1,465 and the resistance will roughly be the September 4th high of $1,543. I have highlighted these levels below on my RJO Pro daily December gold chart.

Metals - Silver Trading Back and Forth After Starting The Week Down

The December silver market started the week lower, trading down to a low of 16.98 before recovering Tuesday and Wednesday. Thursday’s trading session saw more back and forth as the market looked for U.S. jobs data to push it one way or another. This morning non-farm payrolls came in at 136k, below estimates of 145k and we saw an unemployment rate of 3.5% which is the lowest in 50 years. Although the unemployment rate adds some pressure to the silver market, we would have needed to see a higher than expected non-farm payrolls number to see a larger washout back down to weekly lows. With today’s jobs numbers, the dollar and stocks are higher and look to recover after starting the week lower on a manufacturing number that was below expectations on Tuesday. The December gold market has resistance at 17.80 and 18.00 and would need to see a shift in fundamentals to reverse the trend and retest the recent highs. Support comes in around 17.00 and then 16.50 which would also be a point where we would see some value buying.

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 Drop Continues Following Weak ISM

Following this morning’s weaker than expected ISM Services number, the front month November WTI crude oil contract has made fresh lows as the market has filled the gap from the Saudi attacks recently and is testing trendline support from last December’s lows and the lows from early August.

The drop over the past couple weeks has been severe from the extremes of the attack as stochastics and RSI reach oversold levels and the market has only closed up, albeit negligibly, 2 of the past 17 days! While the spike high was supply related, the market does operate at enough of an oversupply to necessitate frequent production cuts. The market has also focused on the demand side as outside markets such as equities have also been weak.

Moving forward, market participants may monitor if the $51.50 level is closed below today as well as the trendline pictured below.  Tomorrow will also feature the jobs number which could also be a catalyst for price action, in addition to further developments for production and supply, such as geopolitical changes around Iran, Saudi Arabia, OPEC, OPEC+, etc.

Energy - Natural Gas in Good Area of Support

Good morning and happy Friday to all. Natural gas for November is trading $2.325 as of this writing.  Natural gas seems to be in an area of good support near the$2.300 handle. This week, the range of trades is once again in a $.10 range between $2.300 and $2.400. Short term moving averages are beginning a down turn, RSI and MACD are also in downward trend. Today’s pivot numbers are $2.315, which is almost exactly the support number. $2.367 and $2.405 are nearby resistance. Support comes in at $2.277 and $2.225 on a standard pivot point calculator.  If we break and close above today’s high, I would think a rise in prices to resistance levels is very possible.  Below $2.400 may hold the price near the range’s bottom.

Yesterday’s surplus numbers were slightly bearish. We were expecting a 106 bcf injection, the actual number came in at 112 bcf.  Today’s weather in the Midwest shows seasonable albeit cooler temperatures. This may give a little support to prices. The market showed a strong up day yesterday due to a slight disruption in European production. The trade and economic conditions in China may hold back traders from jumping on the bull side of the market.  Once again, the trade will depend on prices going to the support or resistance numbers as the day progresses.

Softs - December Cocoa Futures Met by Technical Resistance

Looking at the December cocoa chart, there are two stories being told – a supply and demand battle, and technical levels guiding prices. After the big sell-off from July to August the market erased that turn lower and now has cocoa testing a key resistance point, 2525. This mark has held a few times without ever allowing a large move higher. If the perfect equation can come together – technical data, global risk/currency trade and supply/demand, prices may be able to trade and hold above 2600.

Currently, West Africa supply data is weak, helping support prices but the demand is not there for the soft. Europe and North American demand continues to be weak, somehow Asian demand has been able to brush off the ongoing trade issues. The Euro and Pound, as well as weakness in the stock market, continue to add volatility to cocoa. The Dow and S & P have dropped this week, as low as the levels we saw in August, but a recovery appears to be forming. Look at all these outside factors as little pieces that could give us short-term guidance in cocoa. A boost in demand is the key for the December contract to move hold above 2600 before contract expiration.

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 - Possible Upside Breakout in Coffee

December coffee prices continue to trade sideways for the most part. Prices have held support over the 9750 level, likely due to the steady demand for coffee, which has managed to put a sizeable dent in last year’s large supply of Brazil coffee. Once this excess supply of coffee is removed from the market, December coffee prices should begin to stabilize and hold support above the 100 level. However, we’re seeing some serious weakness in the U.S. stock market, and this most recent selloff in the S&P 500 may likely offer a risk-off mentality for many traders. Next week’s weather forecast for major growing areas in Brazil are showing quite favorable, which really helps to keep rallying December coffee prices in check. Our friends at The Hightower Group previously reported, “with global demand showing signs of improvement, the market may be set for another leg up”.

The December coffee price action is beginning to form a symmetrical continuation pennant. With a potential break above the apex of the triangle (located at approximately at or about the 102 level), we could see an upward breakout and run to the 108 level. We will closely monitor this level.

Agricultural - Traders Shifting Focus to Yield Results and October USDA

December corn continued to consolidate yesterday sitting near Monday report day settlement price of 388.  Corn is up over 17 cents on the week right now. October supply/demand report next week and short covering has been active ahead of this report. Export sales came in at 562,600 tonnes for the current year and 2,500 for the next marketing year. This is on the low end of report estimates. As of September 26th, cumulative corn sales are only at 18.7% of the USDA forecast vs a 5-year average of 28% at this time of year. Japan has bought 1.17 million tonnes this year compared to 0 last year. The Trump administration is expected to formally reveal biofuel policy changes today.

December corn continues to hold above the 50-day moving average at 382. Harvest progress has been slow due to wet conditions in the western belt, but early results are disappointing. The market continues to see short covering which could extend into next week. Resistance comes in at 391 and 393 with support at 386 and 383.

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 - Grain Futures Update w/Stephen Davis - 10/04/2019
Stephen Davis discusses the past week's grain action and looks forward into next week. As Stephen predicted last week, corn prices shot up, but there was also movement in the other grain markets ahead of next week's crop report.
Currency - A Weakening Economy Aids a Strengthening Dollar

U.S. dollar futures are correcting lower this week after last week’s move to the upside. New highs were in place early this week, as the dollar continues to benefit from a relatively-strong U.S. economy. But the greenback was humbled on Tuesday when ISM manufacturing data was released at 47.8 vs expectations of 50! Anything below 50 is considered contractionary, and this was the weakest reading in 10 years. Then on Thursday, the ISM non-manufacturing number missed consensus as well, sending the dollar below 98.40. It is apparent that the U.S. is not immune to an economic slowdown. However, I believe the downside in the U.S. dollar is limited, as America remains relatively stronger than other developed economies (European PMIs were contractionary across the board).

Additionally, there is a shortage of dollar liquidity, evident in the action of the repo rate, at the same time demand for the greenback is as strong as ever. If the world economy continues to show down, the dollar is likely to catch a safe-haven bid. The trusty dollar is the currency of the world economy, and as the dominos begin to fall, demand for the USD will only grow. But a strong dollar is hurting U.S. producers, as foreign money is worth less, and U.S. goods are relatively more expensive. This will probably be reflected in Q3 earnings. The Fed’s hand will be forced when it comes to weakening the USD… but that is a tall task. Rate cuts are expected, but U.S. rates remain higher than those elsewhere in the world. Quantitative easing is a likely response to weakening economic conditions, but I believe that even QE will only weaken the dollar in the short-term, as increased supply will likely coincide with increased demand as contraction grips the world. Foreign currencies will remain depressed if dollar strength persists. But of all the major currencies, the Japanese yen is likely to fight back most successfully due to its safe-haven qualities.

Interest Rates - Historically Poor Manufacturing Number Driving Stocks Lower

Looking back, treasuries were sharply lower yesterday before the ISM Manufacturing number came out and changed everything. We saw the lowest reading in the last 10-years, yields plummeted, and stocks broke. Many pundits are blaming the ongoing trade war for the historically low number. Obviously, POTUS tweeted afterwards that it was the Feds fault as he has done seemingly every time a bad economic number has come out. Trump continues to bully the fed and wants them to lower rates even though many of the economic numbers have continued to be strong, aside from yesterday’s disaster.   One stat that Trump should pay attention to is the two Fed rate cuts that we’ve seen this year and how both resulted in selloffs in the stocks. My point is, when rates have been cut, the stock market has sold off, so Trump should be wary about pressuring the Fed to lower rates. Looking ahead in the week, we have the monthly employment report which comes out on Friday at 7:30 AM. The street is looking for 140k. So, traders should be on guard and my guess is that if we see a weak number, stocks will fall initially, but will put pressure on the Fed to be more aggressive in cutting rates. A strong number should see a pop in stocks. 

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 Up Following Jobs Number

While the headline number from this morning’s Non-Farm Payrolls (136k) came in below the 145k estimate, the unemployment rate dropped from 3.7% to 3.5%.  The July and August readings were also revised higher. Overall, I would say the jobs number was a net positive. Many thought we’d see the headline figure considerably lower following a couple horrendous ISM readings over the last week or so. That’s not to say we knocked it out of the park here, but I think we threw some water on the recessionary fears for the time being. The rest of the day’s slate of news consists of speeches by members of the Federal Open Market Committee (FOMC), highlighted by Powell at 2:00 PM ET in Washington D.C. 

From a technical standpoint, we’re closing in on the 50% retracement level from the 9/13 highs to yesterday’s lows. The daily chart shows a pennant forming with higher lows and lower highs.  Often times, this eventually will lead to continued price action in the direction of the overall trend, which was obviously up before entering into some choppier, sideways action. 

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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