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July 1, 2015

Corn Prices Pop!

Today's Spotlight Market

Highlights from Tuesday's USDA grain stocks and planted acreage report:
Corn stockpiles as of June 1: 4.447 billion bushels
Corn planted acreage 2015: 88.897 million acres
Soybean stockpiles as of June 1: 625 million bushels
Soybean planted acreage 2015: 85.139 million acres

Fundamentals

Corn bulls received a nice surprise courtesy of the U.S. Department of Agriculture (USDA) on Tuesday, as it appears that U.S. Grain usage was higher than expected. That was the key takeaway from the USDA quarterly grain stock report which provided traders the latest estimate as to the size of the U.S. grain and soybean stockpiles. As of June 1st, the USDA estimated U.S. Corn inventories at 4.447 billion bushels. This was 65 million bushels below average analyst estimates. While old-crop Corn inventories are still up 15% from this time last year, usage from March through May of this year totaled 3.3 billion bushels, vs. 3.16 billion the same time last year. On top of lower Corn inventories, the USDA also lowered its estimate for planted acreage this season to 88.897 million acres, vs. 89.199 million acres in its March report. If accurate, U.S. producers will have planted about 1.7 million fewer acres of Corn this season compared to last year. With the June USDA crop report now on the books, traders will once again turn their focus to weather forecasts where a wet start to the growing season has affected crop conditions. The USDA weekly crop progress report showed 68% of the U.S. Corn crop was rated good to excellent, vs. 71% the prior week. For comparison, 75% of the Corn crop was rated good to excellent this time last year. The largest reduction in crop conditions was noted in the eastern Corn Belt, where heavy rains have led to flooded fields, which could reduce harvested acreage totals. While the old adage "rain makes grain" certainly has some validity, especially as we head into the key pollination period in July, producers may be faced with "too much of a good thing" as far as rainfall is concerned in 2015.

Technical Notes

Looking at the daily chart for new-crop December Corn futures, we note the nearly "parabolic" up-move the past 4 trading sessions, as prices have risen over 40 cents in the last few sessions. Tuesday's rally saw prices rising by over 7% for the session, as a close above the 200-day moving average may have signaled an end to the Corn bear market that began last summer. The 14-day RSI has surged higher and is now well into overbought territory, with a current reading of 76.56. While momentum now seems to favor those in the bullish camp, we cannot rule out a near-term price correction, especially if weather forecasts turn drier in the coming days. The next chart resistance level is seen at the December 29th high at 440.00, with support found at the May 18th high of 381.50.

Mike Zarembski, Senior Commodity Analyst


July 2, 2015

Oil Under Pressure?

Thursday, July 2, 2015

Crude Oil futures have been one of the losers in the ongoing Greek debt crisis, suffering several losing sessions due to a slightly stronger US Dollar. The greenback had gotten a boost due to uncertainty and frustration on the part of traders with regard to Greece's stubbornness during negotiations. The country has essentially been playing a game of chicken with European leaders. The country is attempting to get better terms and believes the EU has more to lose by removing Greece from the currency union than gain from severing ties with the economically embattled nation.

Fundamentals

Crude Oil futures have also felt pressure from inventory data, which showed the US supply glut growing again. Crude Oil inventories rose by 2.4 million barrels in the week ending June 26th, which is the first weekly inventory build in 9 weeks. US inventory levels are at 465.4 million barrels, which is the highest level for this time of year in 80 years. Despite the decline in rig counts in the US, production continues to increase. Production rose 9,000 barrels a day to 9.701 million barrels a day in April, which was the highest level since May 1971. Shale Oil production has been especially resilient, especially considering prices are 45% below last year's levels.

Technical Notes

Turning to the continuation chart, we see the August Crude Oil contract closing below the recent low close of 57.51. This suggests prices could come down to test the 53.55 level on the downside. If prices do snap back above 57.51, Oil may continue its range bound trading.

Rob Kurzatkowski, Senior Commodity Analyst

July 6, 2015

No Fireworks from June Non-farm Payrolls Report

Monday, July 6, 2015

In addition to the Non-farm payrolls for June, the Labor department released the weekly data for initial jobless claims. This data is viewed by analysts as an indicator of the extent of corporate layoffs occurring. For the week ending June 27, jobless claims rose by 10,000 to a seasonally adjusted 281,000. The 4-week average of jobless claims rose by 1,000 to 274,750. Claims below 300,000 are considered a sign of a healthy labor market.

Fundamentals

Market participants were able to get an early jump on the long holiday weekend, as Thursday's release of the June Non-farm Payrolls report was relatively in-line with economists' expectations. The Labor Department reported non-farm payrolls rose by 223,000 in June, which was a near bulls-eye from expectations of a 230,000 jobs increase. The unemployment rate fell to 5.3%, down 0.2% from the previous month. While the headline figures were decent, a dive into the details of the report shows some continued headwinds. First, we look at the payroll revisions for the previous two months which were revised lower by a combined 60,000 jobs. Average hourly earnings were flat last month at $24.95, and the year over year gain of 2% shows that wage inflation is very moderate. More disconcerting was the 0.3% decline in the labor force participation rate to 62.6%, which is the lowest level in 38 years. This shows that the decline in the unemployment rate was not due to more workers finding jobs, but rather more potential workers leaving the labor force. In fact, the Labor Department reported about 432,000 workers left the labor force in June. Thursday's employment data is expected to do little to sway the Federal Reserve from raising interest rates sometime in 2015. There was some talk among traders that a very strong jobs report could motivate the Fed to begin to raise rates as early as this month, but it appears that the odds continue to favor a rate hike by September at the earliest, with a vocal contingent believing that the Fed will remain cautious and wait until early 2016 before taking action on interest rates.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures, we notice prices forming a consolidation pattern since the start of June, following a significant price break. Prices are now trading above the short-tem 20-day moving average, but remain well short of the more significant 200-day moving average that many traders consider to determine the longer-term trend of a market. The 14-day RSI has turned neutral, with a current reading of 48.67. The June 11th low of 124.14.5 is seen as support for the September futures, with resistance seen at 126-29.

Mike Zarembski, Senior Commodity Analyst

July 7, 2015

Recession Fears Keep Loonie Under Pressure

Tuesday, July 7, 2015

Lingering fears of a possible recession are keeping the Canadian Dollar below the .8000 level that the Loonie was recently struggling to hold. The sharp decline in oil prices has hurt Canada's economy and the Bank of Canada announced a surprise rate cut in January. Traders and economists are speculating on the potential of yet another rate cut if Canadian economic growth remains sluggish.

Fundamentals

A recession is commonly defined as 2 consecutive quarters of negative GDP growth. Canada's GDP for the first quarter declined at annual rate of 0.6% in the first quarter of 2015. In April, the Canadian economy shrank by 0.1%. Canada and the United States seem to be on different economic paths, with traders speculating on potential rises in interest rates by the United States Federal Reserve and the possibility of a rate cut by the Bank of Canada. The negative to slow growth in the Canadian economy may also influence upcoming national elections on October 19. On a more optimistic note, stronger United States growth in the second quarter and stabilizing oil prices could help stimulate the Canadian economy with a greater US demand for Canadian exports.

Technical Notes

Turning to the 3 month continuation chart, the indicators show bears firmly in control. The 20 day Simple Moving Average (SMA) crossed below the 50 day SMA back in mid-June. The Canadian dollar is trading below the 20 day SMA and broke the previous support level of around .8000. Finally, RSI is in oversold territory at 25.43.

Dale Jennings, Commodity Analyst


July 8, 2015

Global Events Keep Oil Prices in Check

Wednesday, July 8, 2015

This morning's Energy Information Administration (EIA) Energy Stocks report is expected to show a mixed supply picture for Crude and its major products. Analysts are expecting a 1 million barrel draw in U.S. Crude Oil inventories last week, following a surprising 2.38 million barrel build a week earlier. Distillate supplies, including Heating Oil and Diesel Fuel, are expected to see a rise in inventories of 1 million barrels. Gasoline supplies are expected to remain nearly unchanged from the previous week. Refining capacity is expected to remain steady at 95.0%.

Fundamentals

It was not that long ago when all we heard from the media pundits was that the days of $100-plus Crude Oil were here to stay and motorists worldwide would have to get used to further "pain at the pump". Now, as we are more than half way through 2015, there is little bullish talk about Crude Oil prices since lead month WTI futures are trading closer to $50 per barrel. The latest bearish news reaches globally from concerns on what a Greek exit from the Euro will do to financial markets to what effects a slowing Chinese economy will have for Oil demand. An additional wildcard is Iran, where there is some talk that nuclear negotiations are being extended, which could provide time for an agreement to limit Iran's nuclear program in return for lifting some of the economic sanctions that have hurt its economy. One possible outcome from a deal could be Iran being allowed to resume global Oil sales and adding additional supplies to a global market already awash in Crude. Domestically, a weekly report from Baker Hughes showed that U.S. Oil drilling rig count increased for the first time in 29 weeks, which shows U.S. Oil drilling increased despite lower Oil prices. Traders will get their next look at U.S. Oil inventories when the Energy Information Administration (EIA) releases its weekly report on Energy stocks today at 10:30 am ET.

Technical Notes

Looking at the daily chart for August Crude Oil, we notice prices attempting to stage a reversal on Tuesday after a failed test of psychological support at $50.00. Markets have seen an increase in volatility to start the week, following the decisive "no" vote by the Greek populous on a referendum to accept the bailout terms from its creditors. The 14-day RSI entered oversold territory on Tuesday, with a current reading of 26.31. With prices down nearly 10% so far this week, it would not be surprising to see a short-covering rally, especially if Wednesday's EIA report shows a larger Oil inventory draw than expected. 50.00 remains as support for the August contract, with resistance seen at 59.69.
Mike Zarembski, Senior Commodity Analyst

July 9, 2015

International Uncertainty Fails to Shake Gold Bear Market

Thursday, July 9, 2015

Gold prices are in the 4th year of a bear market after peaking in the $1920 range back in September of 2011. Historically, many traders have bought gold during times of economic uncertainty, such as the 2011 US debt downgrade or as a hedge against expected inflation. However, over the past 4 years, there hasn't been a strong correlation between bad economic news and gold prices. Recently, the safe haven has been US Treasuries, which have been on a steady rise lately.

Fundamentals

Traders are keeping an eye on two situations that have potential to escalate. First of all, the continued negotiations between Greece and the Eurozone are causing uncertainty. No one is exactly sure how the Greek situation will play out, but seeing as there has not been a rush into Gold, this may indicate that traders aren't concerned about Greece being a catalyst for future trouble in the Eurozone. The second situation of note is the heavy sell off in the Chinese stock markets. While the sharp decline in Copper prices might easily be seen as a direct result of the collapse in Chinese equities, the continued downward pressure on Gold has some market analysts puzzled.

Technical Notes

Turning to the 3 month continuation chart, we see several bearish trends. 14 day Relative Strength Index (RSI) is in oversold territory at 28.9. The 20 day Simple Moving Average (SMA) is providing resistance, with Gold prices testing the 20 day SMA, but failing to break through recently. The 20 day SMA crossed beneath the 50 day SMA back in mid-June, yet another bearish sign.

Dale Jennings, Commodity Analyst

July 10, 2015

Natural Gas Prices Rally Despite Storage Build

Friday, July 10, 2015

Lead month August Natural Gas futures posted a modest rebound following what was initially viewed as a "bearish" Energy Information Administration (EIA) gas storage report. Last week, 91 billion cubic feet (bcf) of Gas was added to storage, which put total Gas inventories at 2.668 trillion cubic feet. The build was above pre-report estimates of an 87 bcf storage build. U.S. Gas inventories are now 33% above last year's totals for this time period and 1.7% above the 5-year average. The rally in prices was attributed to short-covering buying following the report, as well as profit-taking by weak Gas bears in a market that had become short-term oversold.

Fundamentals

Natural Gas futures have been largely unaffected by the recent bout of market volatility, as bearish fundamentals including ample storage levels and expected growth in production have overshadowed global events in the eyes of Gas traders. As we head into the heart of the North American summer, Gas traders will be focusing on weather forecasts to see if summer heat will expand over the lower 48 states and spur increased demand for cooling and, in turn, power generation fueled by Natural Gas. The Climate Prediction Center in its latest 8- to 14-day forecast is calling for above to well above average temperatures from the Central and Southern Plains region and for most of the South East. However, in the major population centers of the Great Lakes and Northeast, the forecast is for normal to below normal temperatures, which will help to negate any increases in cooling demand from the center/southern portions of the nation. In its short-term energy outlook, the U.S. Energy Information Administration is forecasting U.S. Natural Gas production to increase by 5.7% in 2015, while usage is expected to rise by only 4.2%. If accurate, this will allow Gas supplies in storage to rise above the 5-year average and assure more than ample supplies as we head into the 2015-16 winter heating season.

Technical Notes

Looking at the daily chart for August Natural Gas, we notice prices making a new 1-month low following the release of the EIA Gas inventory report. However, short-covering buying emerged from the recent lows, which set the stage for a mini-reversal. Prices are still holding below both the 20- and 200-day moving averages, so Gas bears are still holding the upper hand. The 14-day RSI has rebounded to a more neutral reading of 45.31. Thursday's low of 2.644 is seen as support for the August futures, with resistance found at 2.885.

Mike Zarembski, Senior Commodity Analyst

July 14, 2015

Greece, Iran Nuke Deal Pressure Gold

Tuesday, July 14, 2015

Gold prices were under pressure after Eurozone leaders agreed to a rescue deal for Greece. With the country certain to stay in the EU and the currency union, some of the fear premium has been sucked from the market. As always, nothing is ever completely certain with regards to Greece. The rescue package hinges on the Greek government pushing through some tough austerity measures and economic overhauls in the coming days. With the volatile nature of Greek politics, there is no guarantee the government will be able to push through the measures.

Fundamentals

With Greece being moved to the back burner (for now), traders are left to focus on economic data, ECB easing and demand. Economic data from the US and Europe has not exactly been anything to brag about. June's non-farm payroll data was disappointing, and there has not been any positive data to cleanse the market's palette from the weak jobs report. In Germany, the ZEW expectations report came in at 29.7 in July, a 2 point decline from June. German sentiment has been steadily sliding, but not nose-diving. It could be due, in part, to German views on Greece and the series of bailouts. UK PPI came in flat, lessening inflation demand for metal within the UK. In short, economic data has been weak, but not weak enough to spur defensive Gold buying. The Iranian nuclear accord has put some additional pressure on Crude Oil prices that could also trickle into the Gold market.

Technical Notes

Turning to the chart, we see the August Gold contract trading below minor support at 1175 and prices are now approaching the 1142.60 level, which may be seen as more significant support. If prices are unable to hold 1142.60, this could trigger additional technical selling.

Rob Kurzatkowski, Senior Commodity Analyst

July 15, 2015

Weak Retail Sales Data Fails to Halt Equities Rally

Wednesday, July 15, 2015

Traders and analysts will have a slew of economic data to sort through the remainder of the week, including PPI and Industrial Production for June, which will be released this morning. Later this afternoon we will have the release of the Federal Reserve Beige Book for July. On Thursday, we will have weekly jobless claims and the Philadelphia Fed Index for July. Friday will bring CPI, housing starts and building permits for June, as well as the University of Michigan consumer sentiment index.

Fundamentals

After a sharp rally in U.S. equities on Monday, the market took a bit of a breather on Tuesday, with the E-mini S&P 500 futures trading modestly higher and trading volume rather light compared to recent sessions. The rally continued, despite the rather disappointing report on U.S. Retail Sales for the month of June. The Commerce Department reported that U.S. retail sales fell by 0.3% in June, vs. an expected gain of 0.2%. Both April's and May's retail sales figures were revised down from their original estimates, which added to the negative sentiment. Gasoline sales were the one "bright spot" in the report, posting a 0.8% increase in June. Economists tend to look at Retail Sales data as an indication of the mood of the U.S. consumer. It was expected that consumer spending would briskly recover following another brutal winter which sharply curtailed household purchases. More importantly, Tuesday's data will do little to sway the Federal Reserve to move towards raising interest rates in the near-term, with the market currently forecasting a 13% probability of an interest rate hike in September and a 49% probability of a rate hike in December.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice prices breaking out to the upside of their recent 2-week consolidation pattern. Prices are now back above the 20-day moving average and are approaching the minor downtrend line drawn from the contract highs made back in May of this year. We should note that trading volume has been light the last few sessions as prices have rallied, which could signal that traders are still reluctant to get overly bullish at current price levels. The 14-day RSI has turned positive, with a current reading of 55.60. The June 22nd high of 2122.00 is now seen as the next chart resistance level, with support found at the recent low of 2034.25.

Mike Zarembski, Senior Commodity Analyst


July 17, 2015

Can Corn Bears Stand the Heat?

Friday, July 17, 2015

Last Friday we received the latest USDA projections in its release of the Crop Production and Supply/Demand report for July. For Corn, we saw the USDA lower its production estimate for new-crop Corn to 13.53 billion bushels. This was 100 million bushels lower than the June estimate on a reduction of expected harvested acres. The USDA did leave its average yield forecast unchanged at 166.8 bushels per acre, although many traders expect this figure to be lowered in upcoming reports due to the decline in crop conditions in the eastern parts of the Corn Belt. On the demand side, the USDA lowered its 2015-16 projection for feed usage and U.S. exports by a combined 50 million bushels, but did raise its estimate for Corn usage for Ethanol production by 25 million bushels. The next USDA Crop Production and Supply/Demand report is scheduled to be released on Wednesday, August 12th at 11 am CDT.

Fundamentals

Long-term traders who have been bearish on Corn futures the past several months have taken some heat, as prices have rallied over 80 cents per bushel during the past 4 weeks on concerns that this season's crop will not live up to the lofty expectations forecast earlier this year. This season has been a case of too much rain that has traders concerned, as well above normal precipitation that has plagued many parts of the central and eastern Corn Belt. Now that we have reached the middle of July, there are some concerns that the spell of hot weather expected to cover most of the Midwest for the next several days could affect the critical pollination period. While in most years a period of hot, dry weather during pollination would be a concern for potential yields, given the rather cool and wet growing weather we have seen for the most part this year, a period of warmer and dry weather may actually be a good thing to help dry out some of the rain soaked fields seen in the central portions of Illinois and Indiana. This could be especially true if the hot spell does not persist for an extended period of time. That certainly appears to be the case, at least according to the Climate Prediction Center (CPC) which has released its temperature and precipitation outlook for August through October. The CPC is calling for an increased probability of below normal temperatures for the heart of the Corn Belt. On the downside is an increased chance for above normal precipitation for most of the same area, with some private forecasters calling for average Corn Yields to fall below 160 bushels per acre if we don't see some more seasonal weather in the coming weeks. A little actual "summer" weather may be exactly what is needed to help this season's crop meet the current USDA forecast of an average yield of 166.8 bushels per acre.

Technical Notes

Looking at the daily chart for December Corn, we notice prices becoming quite volatile of late after the nearly "parabolic" up-move seen at the end of June. Prices are now clearly trading above both the 20- and 200-day moving averages, but the 14-day RSI has retraced a bit from vastly overbought levels to its current reading of 70.39. Trading volume has increased sharply the past 4 weeks, as traders are now focusing their attention on the new-crop futures. Tuesday's high of 454.25 looks to be the next chart resistance level, with support found at the July 7th low of 424.50

Mike Zarembski, Senior Commodity Analyst

July 20, 2015

Loonie Crushed by Canadian Bears

Monday, July 20, 2015

Today's Spotlight Market: The Canadian Dollar continues to fall. The Bank of Canada cut interest rates by 25 basis points last week down to .50%. The Canadian Dollar reacted by dropping to levels not seen since Canada was in a recession in 2009. Friday's trading saw the Loonie drop below .7700 as the strong bearish trend continued.

Fundamentals

Canada's economy is likely in recession as the country struggles with the crash in Oil prices. Every month in 2015 has shown a GDP contraction, and most economists predict that the second quarter will show negative growth, putting Canada into recession. The recent Iranian deal pushed Crude Oil prices lower, further straining a weak economy. Uncertainty in China may also hurt Canadian exports. While growth may return in the second half of the year as lower gas prices may spur stronger auto sales, as of now the Canadian Dollar is on a strong downward trend

Technical Notes

Turning to the 3-month continuation chart, we see some very bearish signs. The 14-day Relative Strength Index (RSI) is extremely oversold at 11.27. There is also a widening gap between the 20- and 50-day Simple Moving Averages (SMA), indicating that prices have been falling quicker in the more recent trading days. The Canadian Dollar has been trading below the 20-day SMA for the past 15 trading days.

Dale Jennings, Commodity Analyst


July 21, 2015

China's Inventories Weigh on Gold

Tuesday, July 21, 2015

Gold futures had a rocky start to the week, with heavy selling out of China. The knee jerk reaction to Chinese Gold inventory data caused the price of the metal to have an intraday crash on Sunday night, which pushed the August contract down to the 1080 level. Overall, trader sentiment has become increasingly bearish for Gold and other precious metals. There is simply not as much geopolitical and economic risk out there.

Fundamentals

China reported its Gold reserves for the first time since April 2009. At the end of June, the country's holdings totaled 53.32 million troy ounces, which was a 57% increase from the last time the country reported its holdings. While this is a sizable increase over the 6 plus years since the last report, it was half of what the market was expecting. The news comes at a bad time for the Gold market, as this is typically a slow time for Indian Gold buying. Commentary from St. Louis Fed President James Bullard suggesting that there is a better than 50% chance of a rate hike in September. There was an increasing opinion that the Fed may have to wait until the new year for rate hikes.

Technical Notes

Turning to the chart, we see the August Gold contract blowing through support at the 1147.50 level. In addition to the news items surrounding the Gold market, it appears as though technical selling helped fuel yesterday's price spike. Sell stops below the 1147.50 support level added fuel to the sell-off. Thus far, prices have been reluctant to stay below the 1100.00 level.

Rob Kurzatkowski, Senior Commodity Analyst

July 22, 2015

Six-Year Lows Put Sugar Bulls in a Sour Mood

Wednesday, July 22, 2015

Despite Sugar's move to 6-year lows, both large and small speculators appear to be trying to pick a bottom in this bear market, according to recent data. The most recent Commitment of Traders report shows non-commercial traders adding over 40,000 new net-long positions during the reporting period ending on July 14th. This increased the net-long position of large funds and traders to nearly 74,000 contracts. Even small speculators have reversed their overall position in Sugar from bearish to bullish by purchasing a net-long 13,000 contracts during the same period to take their overall position to a net-long 10,009 contracts. Commercials remain short Sugar, adding over 54,000 new net-short positions to increase their overall short position to nearly 84,000 contracts.

Fundamentals

Sugar futures could be the poster child for the overall malaise in the commodity markets this year, as the lead month October futures fell to over 6-year lows to start the week. The reasons behind Sugar's weakness are numerous and include large global Sugar stockpiles, the potential for another record Sugar Cane harvest from Brazil, the world's leading Cane producer, and a strengthening U.S. Dollar, which makes commodities priced in Dollars more expensive for non-Dollar buyers. While current low prices for Sugar are expected to lead to increased consumption for the 2015-16 marketing year, the current global surplus is expected to help cap any significant price gains, even if the market moves to a small supply deficit in the coming months. Expectations that Indonesia, the world's second leading Sugar importer, will be buying less Sugar than initially expected this season is an additional factor for the bearish case of Sugar prices. Sugar bulls will note that the current low price for raw Sugar is making it more profitable to produce cane based Ethanol than Sugar used for human consumption, which could allow more Cane to be used for fuel rather than food in the coming months.

Technical Notes

Looking at the daily chart for October Sugar, we note a rare chart gap from Friday's close to Monday's opening. Monday's trading volume was much higher than average, which helps to strengthen the bearish bias. The 14-day RSI remains week but is holding above oversold levels, with a current reading of 36.22. Looking back on the weekly continuation chart for Sugar, we do not see any significant chart support until the 10.50 price level, with resistance seen at 12.80.

Mike Zarembski, Senior Commodity Analyst


July 23, 2015

Supplies, Iran Trigger Oil Plunge Below $50

Thursday, July 23, 2015

Crude Oil futures have broken the $50 level on the downside, the lowest level at which the front month contract has traded since April. Crude Oil fundamentals are taking a hit from all sides - demand, supply, geopolitical risk - and there is virtually no news out there to bolster the market. Outside markets have done little to attract buying in commodities. With the exception of Cocoa, there is very little positive news coming from the commodity markets, which has resulted in investors shifting more assets into the equity markets.

Fundamentals

Globally, Crude Oil production continues to outstrip demand to the tune of roughly 2 million barrels a day. Oil demand had finally picked up the pace in the first quarter of the year and continued to grow into the second quarter due to low price levels. However, Crude Oil may be the victim of its own success. Demand growth is expected to slow to 1.4 million barrels/day in the second half of the year due to the increase in prices. The World Bank expects 2016 Oil demand growth to slow even further to 1.3 million barrels a day. The EIA reported a 2.5 million barrel inventory build this past week, which puts further pressure on the Oil market. The Iranian nuclear deal, as tense as it may be, takes a sizable chunk of risk premium away from the Oil market. The deal may also pave the way for fresh exports from Iran at a time when the US and OPEC are already keeping the spigots open all the way.

Technical Notes

Turning to the chart, we see the September Crude Oil contract dipping below the 50.00 level. Prices have held above minor near-term support at the 48.70 level. Failure to hold here could result in prices testing the 45.00 level on the downside in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

July 24, 2015

Is Dr. Copper Diagnosing A Continuation of the Commodity Bear Market?

Friday, July 24, 2015

Weak demand for Copper by end-users has triggered a move of the "red-metal" to exchange warehouses. London Metal Exchange (LME) warehouse stocks are hovering near 52-week highs at just under 339,000 metric tons, which is more than double the level of exchange inventories year over year. Speculators have also taken a dim view on Copper prices, holding a combined net-short position on the COMEX of 26,724 contracts according to the most recent Commitment of Traders report.

Fundamentals

It has been said that the Copper market has a PhD, or at least a master's degree in economics due to its "ability" to signal potential turning points in the global economy. While the good "Doc" is not infallible in its predictive powers, the market's trend the last 5 years does make one wonder about the current strength of the global economy. Copper prices are hovering near 6-year lows, with analysts attributing the weakness in prices to lower global demand for commodities, especially from China, which is experiencing a slowdown in its economic growth from the double-digit gains seen in years past as well as a rebound in the value of the U.S. Dollar (USD), which makes commodities priced in USDs more expensive for non-Dollar users. In addition, it appears that the major Copper producers are not yet willing to curb production due to lower production costs tied to lower energy prices and weakness in local currencies where the mining occurs. It may take Copper prices moving below about $2.30 per pound before marginal mining costs become an issue and potentially force the major mining companies to curtail production.

Technical Notes

Looking at the weekly continuation chart for Comex Copper futures, we notice the market has been in a bearish channel for nearly 4 years, as prices have fallen nearly 50% from their peak back in early 2011. Prices are now trading near the lower bounds of the channel, which has in the past halted price declines. The 14-week RSI is nearing oversold levels, with a current reading of 30.54. The next major chart support level is seen near 2.1100, with resistance found at 2.9600.

Mike Zarembski, Senior Commodity Analyst

July 27, 2015

Bonds on a Bullish Bounce

Monday, July 27, 2015

30 year US Treasury bonds have rebounded from their sell off earlier this year. Continued worries of an economic slowdown in China as well as a selloff in metals and crude oil have resulted in rising prices for 30 Year Bonds.

Fundamentals

Bond prices are inversely correlated with interest rates and the aggressive buying of 30 Year Bonds has caused the interest rate to drop. Rates had been on an increase with the anticipation of a Fed rate hike in September. Traders now seem split on the possibility of a September rate hike, as the recent drop in commodity prices further reduces the possibility of increased inflation. In addition, while the European situation has stabilized, there is concern about growth in China. The preliminary Caixin China Manufacturing Purchasing Manager's index for July was 48.2, down from June's 49.4. Similar to US indices, a reading below 50 indicates contraction. Contrarians will point to the US Weekly jobless claims coming in at 255,000 which is the lowest since 1973. Strong US employment numbers going forward may point to a September Fed rate hike, which could end the bond rally.

Technical Notes

Turning to the 3 month continuation chart, we see a recent bullish pattern emerging. The divergence between the 20 and 50 day Simple Moving Averages (SMA) is narrowing and trader's will be looking to see if the 20 day SMA will cross above the 50 day SMA. In addition, recent trading has been has seen a series of higher highs and higher lows. This week has also seen trading above both the 20 and 50 day SMAs. 14 day Relative Strength Index (RSI) is currently at a mildly bullish 60.55.

Dale Jennings, Commodity Analyst

July 28, 2015

Q2 Gold Demand Suffers

Tuesday, July 28, 2015

Gold futures have chopped around over the past several sessions, driven by trader indecision. The disappointment of China's much lower stocks of the yellow metal have acted as black cloud hanging over the market. However, Chinese equities have been pummeled in recent sessions and there is some concern mounting on that front. This could drive a bit of defensive buying in the metal.

Fundamentals

China has really been a mixed bag for metal traders. The country is still underperforming economically and no matter what stimulus the People's Bank of China (PBoC) uses, the economy has not responded to it. Further declines in Chinese equities could force traders to higher ground, which could trigger precious metal buying. With Gold falling below the $1,100 an ounce level, it may be attractive to value buyers of the metals. GFMS reported global Gold demand in Q2 was the lowest it has been since 2009. World demand for the Gold bars and coins had declined by 12% year over year from April-June, and 63% below the peak demand in 2013. Jewelry demand had declined by 9%, while global production had declined by 6%. Total physical demand for Gold fell by 14.2% from the same period a year ago and was estimated to have been 858 tonnes. Central bank purchases and China demand both had large declines, falling 62% and 23%, respectively. The data certainly suggests that Gold has fallen out of favor with investors, especially in China, with traders flocking to equities instead. If this sell-off in Chinese stocks continues, could some of these investors return to Gold? Time will tell if this is the case.

Technical Notes

Turning to the chart, we see the August Gold contract consolidating after the steep decline to start off last week. Daily ranges have had decent size, but the daily price changes have not been very large. This is indicative of indecisive trading. The RSI indicator is giving oversold readings, which could be seen as supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


July 29, 2015

Will "Cheaper" Beef Finally Draws Buyers into Cattle Futures

Wednesday, July 29, 2015

On Friday, livestock traders received the most recent data on the size of the U.S. Cattle herd in the release of the monthly USDA Cattle on Feed report. As of July 1st, the USDA estimates 10.24 million head of cattle were on feedlots, which was an increase of 1.9% from year ago levels. Young cattle placed on feedlots increased by almost 1% from last year, with the overall weight of placements running heavier than last year.

Fundamentals

Live Cattle futures have not been immune to the selling pressure seen in the overall commodity markets of late, with the lead month August futures declining over $12 per hundredweight since mid-June. Weakness in the wholesale beef prices was the catalyst for the price sell-off the past few weeks, as meat packers became reluctant to aggressively bid for cash cattle as profit margins weakened. In addition, lower retail prices for both poultry and pork have provided consumers more affordable options to meet their protein needs than beef. However, the aggressive selling pressure appears to have waned, at least for now, as futures prices have become greatly oversold, with the normal seasonal premiums for winter month futures over cash prices becoming almost non-existent. While we may start to see a rebound in futures prices from current over-sold levels, the fundamentals still seem to favor the bear camp. Beef production is expected to rise sharply this quarter, which will add pressure to wholesale beef prices unless retail demand improves. There is also the concern that unless packer profit margins improve, cash Cattle sales may continue to slow, which will allow market ready Cattle to increase in weight, which would add to beef supplies in the coming weeks.

Technical Notes

Looking at the daily chart for August Live Cattle futures, we notice prices finally staging a rebound off 4 ½ month lows. We should note that trading volume has been light the past several trading sessions, as it appears that a lack of new short positions being established may have led to a short-covering rally as weak-shorts cover their positions. Prices remain below both the 20- and 200-day moving averages, but the 14-day RSI has rebounded from oversold levels, with a current reading of 41.98. Monday's low of 142.250 is seen as the next support level for the August contract, with resistance found at the July 15th high of 147.850.

Mike Zarembski, Senior Commodity Analyst


July 30, 2015

Euro Getting Little Help from Fed, GDP

Thursday, July 30, 2015

The September Euro contract finds itself under pressure once again this morning, after US GDP data which showed an upward revision to the prior quarter. Janus' Bill Gross also stated that he believed the Federal Reserve will raise interest rates in their September meeting. Mr. Gross is certainly a bit more confident in his assessment than the market, which is only pricing in a 44% probability based on the Fed Funds futures. A rate hike could be viewed as Dollar positive and Euro negative.

Fundamentals

The Bureau of Economic Analysis reported 2.3% GDP growth in the US. While this was slightly lower than the 2.5% consensus expectation, consumer spending was stronger than expected and the previous quarter's GDP was revised up from -0.2% to 0.6%. The numbers are hardly jaw-dropping, however, and any positive data out of the US has the potential to place bearish pressure on the Euro. The most recent policy statement from the Federal Open Market Committee seemed to be a non-event, as the central bank left interest rates unchanged. However, the altering of the comment regarding the labor market has planted the seeds in traders' minds that the Fed might raise interest rates in September if the next two Non-Farm Payroll reports show improvement. Many now believe that positive job numbers would trigger a rate hike, even if the Fed's 2% inflation target is not met. The ongoing Greek financial crisis certainly emphasizes the fact that European leaders need to have groundwork in place for the next crisis. The bailout last week gave the currency a mild bounce, but there is simply nothing else for the Eurozone to hang its hat on.

Technical Notes

Turning to the chart, we see the September Euro contract holding near-term support at the 1.0815 level. The market, however, was not able to capture any momentum from the bounce. If prices break support at 1.0815, the next downside test could be the 1.05 level.

Rob Kurzatkowski, Senior Commodity Analyst

July 31, 2015

Yield Curve Flattens Following Disappointing GDP Data

Friday, July 31, 2015

In addition to the Gross Domestic Product data, traders also had to digest the weekly figures from the Labor Department on initial jobless claims. For the week ending July 25th, jobless claims rose by 12,000 to a seasonally adjusted 267,000. The rise was expected by most analysts following last week's 255,000 claims figure, which was the lowest level since late 1973.

Fundamentals

The U.S. economy continues to show improvement, but at a much more moderate pace than many economists were expecting according to government data released on Thursday. The Commerce Department reported that U.S. gross domestic product (GDP) grew at a 2.3% seasonally adjusted annual rate in the second quarter. While this was a vast improvement over the revised 0.6% rate in Q1, it fell shy of expectations for a 2.7% rate. The overall growth rate is still trailing last year by 0.4%, with slower spending by businesses the main catalyst in the subdued economic growth numbers. There were some bright spots in yesterday's data, with consumer spending up 2.9% in the second quarter and U.S. exports have risen at a 5.3% rate, vs. a contraction of 6% in the first quarter. The market reaction was mixed, with U.S. Stock Index futures posting a moderate sell-off after the GDP data was released. The U.S. Treasury yield curve continues to flatten, with the 2-yr/10-yr curve falling to 153 basis points, down 13 basis points for the month and 41 basis points lower than a year ago. Many traders still believe that the Federal Reserve will begin to raise interest rates at some point in 2015, especially following the end of the 2-day Federal Open Market Committee meeting on Wednesday, when the Fed made note of continued improvements in the U.S. labor market. However, the pace of additional rate hikes still remains murky, especially given continued subdued inflation levels and tepid economic growth. So the Fed may be content with a "symbolic" 25 basis point increase in 2015 and remain data-dependent in 2016 on any additional rate hikes.

Technical Notes

Looking at the daily continuation chart for Ultra Bond (U.S. Treasury bonds with remaining term to maturity of not less than 25 years from the first day of the futures contract delivery month) Futures, we notice what could be a "rounded bottom formation" developing which would need to see a close above the May 29th high of 161-28 to confirm this bullish chart formation. Prices are currently above the 20-day moving average (MA) but are still holding below the 200-day MA, which is providing a mixed message regarding the short and long-term trends. The 14-day RSI is turning stronger, with a current reading of 60.66. Support is found at the June 26th low of 150-08, with resistance seen at 161-28.


Mike Zarembski, Senior Commodity Analyst