Close: London Session | Forex, Metals, Oil, Agriculture September 15, 2020

Agriculture

The iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO) moves higher and lower with the price of ICE coffee futures. Coffee is a volatile soft commodity, so I would not be surprised if the price experiences another substantial price correction after the action on September 14. Over the period, the coffee price moved steadily higher and into overbought territory on price momentum and relative strength indicators. While that level was over 27 cents below the closing price on Monday, coffee has a habit of wide price swings on the up and downside.
However, I would be a scale-down buyer of coffee future and futures options, leaving plenty of room to add on further price weakness. From 2007 through 2018, the price of ICE coffee futures never traded below $1 per pound. The most direct route for a risk position in the coffee market is via the futures market on the Intercontinental Exchange. While the short-term prospects for coffee appear to be on the downside after the most recent price failure, the long-term view remains constructive for the soft commodity.
The rally in commodities that followed took the price of coffee to a high of $3.0625 in 2011, three times the low in 2008. December coffee futures reached a low of 96.90 cents per pound on June 15.

Currencies

According to Ashish Pandya, a local trader, dollar chana may gain in the coming days on improved festival demand next month. Dollar chana at the mandis in Indore traded low at ₹6,500-7,200 a quintal on subdued domestic demand. SIVR is currently pressured by dollar strength, keeping the precious metals space under pressure. A key impetus for the dollar’s rally since the global financial crisis was an incessant increase in the gap between U.S. bond yields and zero- or negative-yielding European debt.
The level of borrowing, growing deficits, and a falling dollar from 2009 through 2011 created an almost perfect bullish storm for commodity prices. Therefore, investors would do well to continue embracing a cautious posture toward the dollar and maintain inflation hedges. First Majestic also receives 19.9% of Silver Dollar and a 2% NSR royalty on the property. It took notice of our 2020 reality: Everyone is running a zero interest rate policy these days, so the hunt-for-yield appeal of the USD (U.S. dollar) is gone.
If you think the dollar keeps running from here, your answer may be simple: Stick with what has worked. To us, FIVE’s business model has more similarities with an off-price retailer like Ross Stores (ROST) than, for example, a Dollar Tree (DLTR).

Metals

The notable wave of ETF selling in the silver market could reflect a negative swing in sentiment, which could have negative implications for silver prices in the short term. Given the positive macro backdrop for gold and silver, we expect an eventual increase in net long speculative positions in COMEX silver in the quarters ahead. At this producing silver mine, the company is evaluating modifications to its roasting circuit to reprocess tailings, which could add 1.5 million silver ounces per year.
Even with the recent volatility in prices, gold and silver remain among the best-performing commodities this year to combat the fallout from the coronavirus pandemic. : A return to speculative buying interest for COMEX silver would exert significant upward pressure on the COMEX silver price higher, thereby exerting concurrent upward pressure on SIVR. Silver prices have been in consolidation mode since August 10, inducing the speculative community not to rush to assert more upside exposure to COMEX silver.
That has often been true for gold, as well, since gold bull market cycles typically lead to higher production among the leading mining companies.
I’ve estimated that First Majestic will earn close to $150 million from the stream over the life-of-mine at $20/oz silver and close to $250 million at $30/oz silver. Gold and silver prices rose today ahead of US Federal Reserve’s policy meet. The mine produced 18.5 million silver ounces and 39,000 gold ounces from 2006-19.

Oil

MARKETS TODAY OIL: Oil prices edged slightly higher, but forecasts of a slower than expected recovery in global fuel demand due to the coronavirus pandemic weighed. Yet the IEA projected global oil demand would grow by around 5.5 million bpd next year, climbing to an average of 97.1 million barrels a day. Meanwhile, OPEC expects world oil demand to fall by 9.46 million bpd this year, more than the 9.06 million bpd decline it forecast a month ago. Who wants oil?The International Energy Agency added its voice to warnings over future demand for oil in its monthly report this morning.
Cox Oil’s rent payment capabilities or at least their ability to renegotiate their rent payment capabilities, was directly tied to the price of oil. Trafigura Group, the world’s second-largest oil trader, warned that the oil market is about to go back into surplus. Spot West Texas Intermediate (WTI) crude oil exited the month at $42.61 per barrel, up 5.8% over the period and 22.7% lower year over year.
OPEC and allies, a group known as OPEC+, have been reducing production since May to support oil prices after global demand plunged in the wake of the coronavirus pandemic. Oil approached $38 a barrel, even as the IEA warned the outlook has grown “ever more fragile” as the virus derails demand. Please also see our Cross Commodity Report published yesterday, a joint publication by the power, carbon, coal, oil and gas analyst teams in Refinitiv Commodities Research.

United States

The Wall Street Journal last week tabulated that the central bank has spent €676 billion on government bonds so far this year, compared with €367 billion in new issues. The market expects more details tomorrow about the new FAIT mandate (flexible average inflation targeting) and what exactly the Fed’s plan is moving forward. Coronavirus cases in the US have popped back above the 30k/day market this week as the world rockets toward the next major milestone number: 30 million.
Overall, on Tuesday, stocks are higher and currencies bid as well, though we don’t expect all that much volatility, with market participants positioning into tomorrow’s anticipated Fed event risk. Moreover, the US Fed has told markets it is prepared to tolerate inflation above its 2% target rate over the coming months, and perhaps years. Futures for Wall Street s major indexes were higher, ahead of the U.S. Federal Reserve s two-day meeting, as upbeat data from China revived optimism around an economic rebound.
), is the Fed’s new tool for managing inflation and was first unveiled by Fed chairman Jerome Powell at last month’s virtual Jackson Hole Symposium. Since the Fed announced it’s 2% inflation rate target in 2012, inflation has only reached that level, once in 2018 and has otherwise averaged 1.6%. U.S. futures are pointing to another green session (Dow +0.6%, S&P 500 +0.7%, Nasdaq +0.9%) after the market kicked off the week with a broad-based rally.
The market is sensing that the next major move will be driven by fiscal spending and the Trump administration’s coming infrastructure program.

China

President Xi Jinping pushed back against EU “lecturing” about human rights in a call about European investment with the region’s leaders yesterday. While this is a step in the direction of more balanced growth, Beijing’s policies still seem to favor supply over demand. The fancy footwork was also on display during a call yesterday between China s Xi Jinping and European Union leaders, including Angela Merkel.

Europe

Moreover, the EUR/USD has struggled to make it past the 1.20 mark, with the ECB hinting that further appreciation in the currency would make monetary policy planning more difficult. The prohibition on monetary financing of public debt means the ECB must make its purchases in the secondary market.It’s a fine distinction that doesn’t affect bond prices. Sanctions at the EU level would also have to be sufficiently substantiated by evidence and be deemed a proportional response to avoid being thrown out by EU courts.
It all started with the U.K. being ready to break international law for the Brexit divorce, sending a negative message across financial markets. Germany’s Angela Merkel, true to neoliberal form on trade, suggested human rights issues are not the kind of thing to stop Germany from wanting to sell more German stuff. Juxtaposing ECB purchases with new issuance does not mean the ECB is buying those new issues. China and the EU paid lip service to ideas that the seven-year-old investment pact negotiations can be successfully concluded this year.
It now expects a deficit above 11% of GDP.Even so, eurozone countries cannot keep up with the ECB’s appetite for bond purchases. However, China told the EU that human rights were its internal affair, a European problem too, and that it would take no lectures. Both of those would target any of the 120 or so companies in a dozen EU countries wanting to do business with Nord Stream 2.

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