RJO FuturesCast

November 22, 2019 | Volume 13, Issue 47

The Markets

Metals - Gold In the Middle of a Tug of War

If we look at how February gold has traded over the past few weeks, it should come as no surprise that a stock market rally has pressured the precious metals market in a big way. Full disclosure, I don’t see gold going beneath 1425 over the next month, but I absolutely do not see gold rallying back to contract highs either. I think that the market sentiment as a whole is mainly three categories that are all playing tug of war with gold.

The first would be the gold bulls who think that the trade talks will collapse any day, Trump will be impeached, and the stock market is going to be down double digit percentage points. The second category would be the gold bears who believe the stock market is strong, manufacturing data this morning proves that, and company earnings continue to blow away expectations. The third is a category that I fall into where logic dictates that there is plenty of uncertainty to keep Feb gold well supported from 1425 to 1450, but not strong enough to run back the mid 1500’s. Market sentiment and the technicals are what I am watching right now, and gold should continue lower to around 1435. This is the sweet spot I am shooting for, and if we were to trade down to this level I think there is a great opportunity for metals traders as a whole.

There are excellent ways to approach gold with deep liquidity in gold futures vs any ETF and options that are far superior to any gold ETF. Gold futures trade $29B worth every day compared to the most popular gold ETF (GLD) with just $1.1B trading every day as an example. .

Metals - Silver Waiting on Washington D.C.

The Dec silver contract is approaching expiration as open interest in March is picking up. March silver is now trading $17.195 flat on the day. The most newsworthy development in the past few days is that the U.S. is stepping up its presence in the south China sea. The deployment two of USS Gabrielle Giffords and USS Montgomery sends a signal to Beijing that these high powered advance fleets are capable of countermeasures that China may attempt. Also, with the house potentially passing impeachment and forcing the Senate to hold a hearing could give silver additional lift.

Later today, we will see the COT reading of fund positions in silver. In my view, any break should be bought rather than sold. The only real fear silver traders should have weaker economic readings in major powerhouses around the world.

Technical analysis shows on weekly contact that momentum favors bear camp in the near term; trade needs to close above $18.00 to encounter bear attach.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.
Energy - Crude Coming Off Two-Month High

Oil is coming off nearly a two month high following a range up upside breakout yesterday amidst continuing doubts of a partial trade deal between U.S.-China being made, which is weighing on global economic concerns.  This comes following reports that OPEC and Russia are likely to extend production cuts until possibly mid 2020 following their meeting early December, with an emphasis on compliance from countries such as Iraq and Nigeria. The current arraignment is for a cut of 1.2 million bpd through the end of March. Weekly crude oil stocks came in on a 1.3-million barrel build, which was largely offset by the largest cushing decline since August. Given the aggressive rally in the last two consecutive sessions and the market now signaling immediate term overbought expect some corrective action in the near term with today’s range seen between 55.40 – 58.75.

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 - Sugar Grinds Higher and Could Start to Rally

Mar ’20 Sugar futures continue to grind out higher prices despite negative outside market influences. Sugar is on track for its 5th week of gains with what is still a massive net spec short. The weekly charts show a clear trend in higher lows which indicates prices are well supported even with a recent sell-off in energies and the Brazilian real seeing 4-year lows. Reports continuously indicate an increasing global production deficit for 2019/20 from India, Thailand, Europe, and now the U.S. after recent storms. With prices already so low and a significant net spec short position, Sugar has a lot of fuel for a sustained rally, supported by strong fundamentals. My analysis suggests this market could see some exciting and impressive activity in the near-future.

Agricultural - Grain Futures Update w/Stephen Davis - 11/22/2019
RJO Futures Senior Market Strategist, Stephen Davis discusses this week's movements in the grain markets. Stephen mentions the effect the completion of a Phase One Trade Deal with China could have on our domestic grains.
Agricultural - Cattle Market Seems Bearish

The cattle market looks a bit toppy to me right now. The estimates for the upcoming cattle on feed report came out and appear to be bearish, 101.4% is said to be the on-feed number, 112% for placed, and 99% for marketed. The higher placement number could be a bearish factor to the February and April contracts.  February cattle is trading at nearly a $10 premium to the cash market with open interest continuing to trend upwards, but with a failure to close above the 10-day moving average and taking out the previous two trading session lows could signal the beginning of a turn to the downside in cattle. With the upcoming Cattle on Feed report and the large premium between the futures market to the cash, I see a market correction coming sooner rather than later with a $3-$5 dollar sell-off over the rest of the month into December. The USDA estimated cattle slaughter came in at 118,000 head yesterday. This brings the total for the week so far to 236,000 head, up from 231,000 last week, but down from 242,000 a year ago. USDA boxed beef cutout values were up 83-cents at mid-session yesterday and closed 11 cents lower at $239.01. This was down from $240.50 the prior week and the lowest beef market since November 11th. There has been no cash cattle trade in the plains so far this week but Iowa/Minnesota cattle traded at about $1.00 lower than last week to an average price of $115.61.

Currency - Currencies Chop Sideways as Trends Fight for Reversals

U.S. dollar futures are modestly higher Friday morning, forging a fresh high for the week. Weekly scheduled data has not been overwhelmingly positive or negative, so it appears the bounce in the dollar index can be attributed to a breakdown in trade talks and technical support. The greenback is still in the grips of a strong bull trend on the weekly chart. Buying support has stepped in above critical trendlines and a double-bottom has reinforced support at the 97 level. The Japanese yen is carving out a bottom as well, drafting some support from a stronger-than-expected Japanese core CPI number. Given its “safe-haven” qualities, the yen is likely to hold support at 92.17 as long as trade tensions dominate headlines. European currencies are lower this week due to their strong inverse correlation to the dollar. Commodity currencies are rangebound. The Canadian dollar bounced off strong support at 75 this week and looks to move higher in the short term.

Equity - Do Stocks Know It's Christmas Time?

U.S. stock futures were slightly higher Friday as the most recent comments from the Chinese government raised hopes of a deal after some inconsistent news pulled the market off its record highs. Earlier in the week there were reports that suggested that there could be a delay in the truce into next year, but Beijing has stated that it is willing to work out a deal “on the basis of mutual respect and equality”. Dec. 15th is a date to watch as this is when U.S. tariffs would kick in on Chinese goods that include holiday items such as Christmas decorations and electronic goods. Scott Brown, a chief economist at Raymond James, had stated “It’s less likely the deal will be signed by the end of the year, but you may see the Dec.15th tariffs postponed.”

Later this morning we will get a reading on the health of the consumer as the November’s consumer sentiment data will be released at 10:00 a.m. According to the University of Michigan, October’s number came in at 95.5. Higher readings indicate that consumers are more confident about current and future economic conditions.

Support today is checking in around 309200 and 3080 with resistance showing 311500 and 312700.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.

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