RJO FuturesCast

October 9, 2020 | Volume 14, Issue 41

The Markets

Metals - Gold Needs a Stimulus Deal

December gold futures have been trending higher the past few days as traders are hopeful that some sort of stimulus deal can be patched together before the election. Even if it’s just some “stand alone” deal. Gold futures sold off hard on Tuesday along with equity futures on a Trump tweet to end talks with Democrats to reach a stimulus deal before the election. Wednesday talks resume and gold begins to climb back above $1,900. At the time of this writing December gold is trading $1,925. The gold bulls need a close at $1,935 or higher. Another stimulus deal is dollar negative and positive for gold and also what equity traders are hoping to see before the election. I’m a bit cynical when it comes to trusting politicians to act in the best interest of the people they represent. However, I do remain bullish on gold. The long-term trend remains firmly intact. I think that the next pop over $1,950 will quickly get us to $2,000. I wouldn’t want to be out of the market as we get closer to the election. I cannot imagine a scenario where we have a clear, undisputable winner on November 3rd. Gold isn’t “looking” for direction. Gold is just waiting for its next explosive rally. The only thing that would surprise me is if gold did not make new all time highs before the end of the year.

Gold Dec '20 Daily Chart
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Energy - Oil Set For Weekly Surge Amid Output Losses

Oil prices have lost some of their momentum in the early session but are poised to end the week on a five-week high amidst support from output shutdowns in the Gulf as well as the prospect of supply losses in Norway due to a labor strike. Norway’s production is expected to take a 25% cut resulting in the loss of nearly 1 million barrels per day. These production losses helped in part to ease ongoing concerns regarding demand as well increased corona cases.  This comes as OPEC on Thursday stated at its annual World Oil Outlook that it had downwardly revised its demand prospects for global growth over the long term, suggesting that demand will plateau into the late 2030s. Weekly inventories did little in providing support as inventories had a slight increase as expected. Remain cautious on the volatility of oil (OVX), which could ramp up to the 50s in the near term. Oil prices have been teetering around the bull/bear line, which comes in around 41.90 but remains bearish trend with today’s range seen between  37.40 – 41.76.

Crude Oil Nov '20 Daily Chart
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Softs - Coffee Taking a Breather

December coffee prices are targeting key support levels on slowly growing demand. The 100 level in December coffee hasn’t been tested since mid-July of this year, and since the promise of more and more States ramping up occupancy levels in restaurants and coffee shops grows, a stimulus package is still required to inject stronger demand levels across all commodities. While the stimulus negotiation debacle continues, we can expect that demand levels will not return in the near term and coffee prices should be comfortable below 110.

From a technical perspective, a recent (and aggressive) dive below the 200-day MA (resting at around the 119 level) is bearish, and likely will see follow through selling to the key support area of 100.  We also can also make notice a consolidated bear pennant which if fulfilled (as a continuation pattern), could push December coffee prices to at or about the 100 level. I would expect a continued selloff at this time. There are several strategies that traders can apply in this situation.  Call or email for specific strategies.

Coffee Dec '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 10/09/2020
Stephen Davis discusses the latest news in grain markets ahead of this morning crop reports. Interestingly enough, grains are up early this morning which is unusual before a big report.
Currency - Dollar Contingent on Jobs Report

I suspect the dollar will generally track within a tight range today from 94.25 down to 93.56 as the currency markets wait for the overall results of a series of key fundamental issues. The most likely fundamental issue to present a key outcome this morning is the latest report on US jobs with a modest improvement likely to press the dollar down toward the bottom of the range. Although, seeing the passing of an airline bailout package could apply additional pressure, but without real stimulus, on top of positive claims, the trade will probably be unwilling to extend the October slide we have experienced. Momentum studies trending lower should accelerate a move lower if support levels are taken out. The next downside target is now at 93.37. The next level of resistance is around 93.80 and 94.10, while 1st support hits at 93.50 and 93.37.

USD Dec '20 Daily Chart
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Interest Rates - Treasuries All Over the Place On Mixed Stimulus Package News

Looking at the 10-year chart, we have had almost a ¾ move this week with a high of 13914.5 and a low of 138-23. The trade is solely focused on stimulus talks. Yesterday afternoon, Trump tweeted that all talks would stop between parties because they cannot agree on a fiscal stimulus plan and they should hold off until after the election. That sent stocks sharply lower and treasuries higher. Last night, Trump changed course and let’s try to get things done asap and he is now focused on trying to get a deal done in pieces. So, today we see another reversal where stocks are sharply and treasuries lower but off the lows currently trading at 138-27. It’s going to be a difficult trade because moves are literally being made on tweets. Tonight, we have the Vice-Presidential debate so traders should expect some volatility. I do believe we will see progress being made with many people still out of a job, needing money to pay bills, and to put food on the table for their families. But, there is so much hostility between both parties right now, one has to wonder if Pelosi would rather wait till after the election, so Trump doesn’t get credit for passing the bill. It puts many Americans on hold which is unfortunate because Washington should be working for the people not looking out for their parties.  

10-Year Note Dec '20 Daily Chart
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Equity - Stocks Higher to Kick Things Off

Renewed stimulus hopes have the dollar trading lower and stocks higher this morning.  We’re now two months past the August deadline for a deal, so I’m not holding my breath that they’ll get something done in short order.  However, the fact that talks have been ongoing is encouraging. We’re coming down the home stretch to the election, and politics are heavily at play.  Everything seems to be a matter of how things are polling for each side at the moment, but I think both sides would benefit from a deal of some sort. During Wednesday’s release of the Fed minutes, Jerome Powell suggested that more stimulus would be needed in order to support a continued recovery. Regardless of when something happens, the market seems to be pricing in something getting done in the near future. Whether that is before or after the election remains to be seen, but I think it is safe to suggest that regardless of who wins, money will be flowing shortly after the election results at the latest. 

E-mini S&P 500 Dec '20 Daily Chart

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