Daily Close | Forex, Metals, Oil, Agriculture October 26, 2020

Agriculture

Earlier this month, the USDA’s monthly World Agricultural Supply and Demand Estimates (WASDE) report forecast a large, and somewhat unexpected, reduction in global soybean stocks. Exhibit 1 illustrates global soybean ending stocks in the 2020-2021 crop year dropping in October 2020 to the lowest level in four years. The 2018-2019 crop year coincided with the start of the China-U.S. trade war, which was the catalyst for U.S. soybean exports to plummet.
On the demand side of the ledger, China imports roughly 60% of total global soybean exports. The S&P GSCI Soybeans is designed to provide investors with a reliable and publicly available benchmark for investment performance in the soybean market. Brazil and the U.S. make up approximately 85% of total soybean exports, and there have been supply issues in both countries. Chinese monthly imports of soybeans reached a new five-year high this Northern Hemisphere summer (see Exhibit 2). Soybean meal is used as a source of feedstock in animal production.
Single-commodity indices can offer investors an efficient way to access the return streams of unique assets such as soybeans. Here Wheels is harassing what seems to be normal pedestrians who look like they are just out for coffee and/or lunch in the area.

Currencies

Volatility in currency pairs has declined after a September spike when investors scooped up options strategies to protect them against big swings in the U.S. dollar and stock markets. When J.C. Penney Co. went bankrupt, an auction held for holders of default protection found the retailer’s lowest-priced debt was worth just 0.125 cents on the dollar. But timing is very important here, and futures contracts are relatively large in dollar terms, even the mini contracts.
Men’s Wearhouse, which filed in August, traded this month for less than 2 cents on the dollar. The Dollar and gold fared reasonably well as safe havens. Source: Bloomberg The Dollar rallied on the day, erasing Friday’s flub…

Metals

The reason why gold futures almost always look like this has to do with borrowing costs and the yields investors would receive or pay for storing physical gold. Again, the copper miner has copper and gold prices on their side with mining production ramping up without any further increase in capital spending. For example, if gold increases by 10% in a year, UGL will likely only increase by 16% (20% in price appreciation minus 4% in roll yield). The mechanics of this strategy are quite simple: only hold gold when it has delivered positive return over the past year.
This state of futures contracts (increasing in value along the curve) is called “contango” and it is how gold futures generally are priced. Since these numbers are based on copper at only $3.25/lb and gold at $1,900/oz, one probably has to consider the upside potential to this story. So put simply, UGL is an ETF which is perpetually holding exposure to the gold futures curve on a 2-times leveraged basis.
In the case of gold, futures traders are unfortunately out of luck because the curve almost always looks like this. At present, I believe that gold is in a moderately bullish trend with price gains somewhat capped by recent overhead resistance. For the traders of the ProShares Ultra Gold ETF (UGL), it’s been a strong year with shares returning over 41% on a year-to-date basis. This would result in a risk-free profit for the gold trader and is the mechanism at work keeping the futures curve in contango.
First off, one of the key factors which has historically driven gold prices is flashing a very strong buy signal.
For UGL shareholders, most of your return will come in the form of changes in the spot price of gold. At the start of the month, simply calculate the 1-year return of gold – if it is positive, hold UGL for another month. Gold’s technical picture is only moderately bullish in the short-term so higher frequency traders should be on the defensive. Within the gold ETF space, the large majority of invested money is actually placed in the physical commodities rather than futures contracts.
To the upside, gold needs to get back above the $1,940 level for a positive momentum shift to occur. The largest copper user in the world has already snapped back into growth mode leading to the substantial rally in copper prices. This factor is momentum: or the past strength of gold driving future strength of the commodity. The sudden price drop this year only served to reduce supply to an already promising market quickly rushing towards EVs requiring far more copper supplies.

Oil

Libya’s National Oil Corp (NOC) on Monday ended force majeure on the last facilities closed by an eight-month blockade of oil exports by eastern forces. Halliburton has been operating under tough market conditions as weak crude oil prices and a global pandemic has damaged energy demand. The US oil and gas rig count bottomed at 244 rigs in mid-August and has since gradually improved to 284 rigs, as shown in the image below. The shale oil producers have removed hundreds of rigs and demand for fracking services has plunged.
The oil and gas producers, who are Halliburton’s customers, have slashed spending and reduced drilling activity. The Brent crude oil price has been hovering in the $40 to $45 a barrel since mid-June. The global oil demand has recovered after bottoming in the second quarter. The November East-West 380 fuel oil differential lost $0.50 to $12.50/mt, while the December contract gained $1.00 to $13.75/mt. Below this, we have the VPOC as denoted with the yellow dashed line which acts as the fulcrum of the market in the $40.60 per barrel area.
From a technical perspective, it is the red dashed line at $42 per barrel which is the standout level. Libya is also expected to load eight cargoes of Sharara crude in November, or about 160,000 bpd, according to a source with direct knowledge of the matter.

United States

less Today the combo of no stimulus and 68,767 new covid-19 cases reported yesterday in the US, higher than the level in March took down stock markets globally. Upstream investments in the US, which has long been Halliburton’s primary source of revenues and earnings, fell by almost 50% to $100 billion this year, as per one estimate. The company generated over $387 million in revenue over the last 12 months, making Urban One one of the most undervalued stocks on the NASDAQ.
If Trump’s economic plan proves successful then Urban One should see a large boost in ad dollars. A $500 billion economic plan sounds wonderful but Urban One won’t benefit if Trump’s plan fails to take place. New infection daily records were set in the US during Friday and Saturday last week at 82,244 and 79,852 with 29 states setting records for new cases. With only a few exceptions, since listing on the Nasdaq in 2016 at $13 per ADS share Gridsum’s share price has moved only one direction–down.
Rather than providing the fiscal stimulus needed to help offset the economic headwinds, the branches of the US government have reached an impasse.
Global Economic Intersection was founded by TalkMarkets contributors, John Lounsbury and Steven Hansen, less With eight days until the US Presidential election, investors are finally growing nervous. President Donald Trump announced his “Platinum Plan”, a $500 billion economic plan that empowers the African-American community. This week, the Fed released the latest Beige Book, which contained this overview of the US economy (emphasis added): Changes in activity varied greatly by sector.
Last week, the Wall Street Journal broke news that Palantir was developing a software product called Tiberius to help track the manufacture of COVID-19 vaccines. So far this year, the company has recorded strong sales from beverages in Canada and has plans to expand the beverage business in the US with BioSteel. Bonds racked up the style points, too, in ways that Wall Street tends to read as signs of better economic growth to come. Source On the other hand, if President Trump retains power, we will likely see a fiscal package pass sooner but it will not be as large.
There are two competing trends on Wall Street, as some look for beaten-down companies to invest in while others believe that shares trending down will continue to do so. Teradyne’s (NASDAQ:TER) earnings report last week was strong but probably important to many were hints to Apple (NASDAQ:AAPL) strength. I used this approach with every single dividend growth stock I purchased, and while it is not very “Wall Street-ish,” it worked for me.
Recent polls show former Vice President Biden has widened his lead over President Trump, particularly since the first presidential debate and Trump’s coronavirus infection. The fact that Trump proposed such a robust economic plan shows there is a lot of much-needed progress.

Europe

The company also has cost advantages by operating in Jordan, which has a free trade agreement with the U.S. and EU.

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