RJO FuturesCast

December 6, 2019 | Volume 13, Issue 49

The Markets

Metals - Feb Gold at a Crossroads

February gold futures seemed to show some life over the past week with volatility in the stock market once again picking up; It was short lived. This morning’s blowout, incredibly positive non-farm payrolls number indicated 266,000 jobs were added vs the expectations for 188,000. This was coupled with a very positive 3.5% unemployment rate, vs expectations of 3.6%. Despite the recent stock market jolt the economy of the U.S. is still quite healthy, and the data supports this. Gold is down over $16 this morning coming back toward its recent lows in November of $1460. I would not be a buyer of gold in any way at least in the short-term.

Technically, gold is still stair stepping its way down and following a very gradual downtrend it’s been in since highs posted back in early September. The way Feb gold is trading right now, it wants to settle back in the low to mid 1400’s and what I think is going to be a trade down to $1450. There are plenty of reasons to be bearish with all of the positive economic data, and technicals to support. There are only a few reasons to be bullish. The most obvious is a trade war escalation on December 15th, with tariffs increasing on an additional $156B in Chinese goods. This could absolutely trigger a stock market selloff similar to what we had in December of last year. If this is the case, look for gold to bounce back toward $1500, but beware this level as follow through is needed above $1500 to warrant a long position in gold.

Metals - Jobs Are Up, Silver is Down

March Silver is trading at $16.65, down 40-cents on the day, despite good news coming from the U.S. employment number this morning. Stocks are rallying forcefully and risk is off. Given the technical setup of outside day, more weakness is likely. Highly likely that, a $16.00 level will be tested. The negative outlook of deal with China and the seasonal demand for metals for this time of the year could garner a bit of support. A trade above $17.25 in the March contract is needed to reject bear attach. Silver sometimes is friendly to the equity market, and that could be another supporting factor. For now, at least, there is a divergence between equities and silver. Also, to keep in mind, the dollar is firm of the same job number putting silver on the defensive.

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 - Oil Looking to OPEC

Oil prices have been pairing between gains and losses as the trade awaits the OPEC decision involving production. This comes amidst a larger than expected decline in EIA crude stocks as well as unabiding optimism on trade. OPEC in principle, as of this writing, have agreed to cut production by an additional 500,000 barrels per day through the end of March 2020, bringing the total to 1.7 million barrels per day or 1.7% of global output.  This replaces the previous production cuts that had been initiated in January 2017 and comes as Saudi Arabia pushes for higher oil prices amid the initial public offering of state owned Aramco, which was just priced at a value of 1.7 trillion. With Saudi Arabia already producing less than their quota, the de facto leader has been adamant that if non-compliance by countries such as Iraq and Nigeria persist, they will boost production effectively assuring that overall output will continue for the three months. Oil is signaling immediate term overbought within its bullish trend with today’s range seen between 54.97 – 59.87.

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 - The Coffee Rally Could Keep Raging On

March ’20 coffee futures have push this morning but are likely to continue the rally as the supply and demand dynamic drives this market higher. March coffee have recently hit new 13-month highs as the many bullish fundamentals we’ve been tracking have been coming into play. From production deficit to increasing demand this move is strongly supported as supplies grow tighter.  The multi-week rally to date has been heavily fueled by massive short covering. What I find to be most exciting about this market is that the fund traders have not only covered their shorts but are now becoming buyers, which suggests this could become more than just a rally, but could become a full blown bull market.

Agricultural - Grain Futures Update w/Stephen Davis - 12/06/2019
RJO Futures Senior Market Strategist, Stephen Davis discusses this weeks movements in the grain markets. The markets were heavily affected by some comments on China this week and we'll have to wait and see where they go in the future.
Agricultural - Live Cattle in Consolidation

Cattle futures in the February contract have been in consolidation for the past few trading sessions, and for the short-term, there looks to be bearish fundamentals. The premium in the futures market to cash is making producers feed their cattle out to heavier weights, which is looking to increase supply higher than expected. Cash prices in Nebraska traded at $119 on light volume Tuesday. The weather forecast is another bearish factor in the market as it looks to be very dry in the plains. February cattle closed right on the 10-day moving average and looks to take a bounce off of this level and retest the recent highs of 127.15. If it fails to do so due to the bearish fundamental factors, then I suspect the market to fall back to the $123.20 resistance levels. A break through the $123.20 could see some follow through to the $120 price level as a 38% retracement and would have the market fall back to $119. The USDA estimated cattle slaughter came in at 120,000 head yesterday. This brings the total for the week to 240,000 head, up from 225,000 last week, and up from 238,000 a year ago. The USDA boxed beef cutout was down $1.33 at mid-session yesterday and closed $2.46 lower at $230.15. This was down from $233.24 the previous week and was the lowest the cutout had been since October 30.

Currency - U.S. Dollar is Higher on Strong Jobs Number

U.S. dollar futures are 30 points higher Friday morning after the release of a blowout November jobs report, indicating the U.S. economy is withstanding a slowdown in the world economy. American non-farm payrolls increased by 266,000 jobs in November, crushing expectations of 180,000. Unemployment matched a 50 year low of 3.5%, while average hourly earnings growth clocked in at 3.1% year/year. It would appear as if 2019 Fed policy is having a positive effect on the economy, lowering the chances of a future rate cut and supporting the greenback. Friday’s chart shows an engulfing candlestick which often signals a reversal. So long as the dollar remains above 97, I believe the momentum remains positive. Foreign currencies are selling off as money is reallocated to the US currency. The Canadian dollar and the euro are Friday’s biggest losers, with the Australian dollar 4 points higher. The New Zealand dollar appears to have broken out this week and looks to be poised for more upside.

Equity - Goodbye Tariffs, Hello Jobs

Global equity markets were higher Friday morning with China indicating that they will waive tariffs on some soybean and pork imports from the U.S. while a strong jobs number further rallied the markets before the open. This olive branch from China is the latest turn of events in the two-year trade war between the countries that has been causing havoc in the investor and business sectors. Today’s release of the jobs number by the Labor Department easily topped expectations. Economists were expecting a gain of 187,000 jobs while the actual number of 266,000 was announced.  Also, the unemployment rate dropped to 3.5% from October’s 3.6% number, matching a 50 year low. Wages also rose a strong 3.1% in November compared to the previous year.

Support today is checking in around 310500 and 309400 with resistance showing 312800 and 313800.

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.

Coming Up Next Week...

View Futures Calendar