Open: London Session | Forex, Metals, Oil, Agriculture August 04, 2020



EXPLAINER-Cheaper cocoa may not be a recipe for lower chocolate prices Chocolate fans will not necessarily benefit from predictions of a fall in cocoa prices this year. The volume included 18.3 million tonnes of wheat, 6.9 million tonnes of barley and 448,000 tonnes of peas, the ministry said in a statement. But chocolate bars will not necessarily get cheaper partly because the price of cocoa is only one ingredient in the mix that makes up the retail price.
Crop Watch producers maintain high expectations for their corn and soybeans, but at least half of the locations are needing some rain to prevent a decline in yield potential. MARKET NEWS Chicago soybean futures slid for the first time in four sessions, as near-perfect weather across the U.S. Midwest boosted expectations of a bumper harvest. Cocoa futures in New York and London rose sharply on Monday as dealers see a more positive outlook for the chocolate-making raw material. Soybean ratings improved to 73% good-to-excellent, up 1 percentage point and above an average of expectations.
COLUMN-Crop Watch: Dry weather being eyed in Iowa, Nebraska, Ohio -Braun The U.S.


The slump in oil prices this year already has prompted some investors to bet against Gulf nations’ currencies, putting longstanding currency pegs with the dollar under pressure. It would in one way be harmed by dollar debasement, but in another way, a general debasement of fiat currency would offer China and Russia the crisis (i.e. Gene comments on stock, bond, dollar, oil & gold markets, with a particular emphasis on monetary policy, technology issues and S&P intraday action.
In March 2020, when it felt like everything was crashing, one of the issues that accentuated the problem was a dollar shortage. Swap lines provided a lifeline to these nations, which were struggling with a dollar shortage during the recession. In 2014, Jared Bernstein, Obama’s former chief economist said that the U.S. Dollar must lose its reserve status, if such a re-boot were to be done. That’s why Currie points to the disconnect between the gold price (which usually governments like to repress), and a weakening dollar.
Further, when the dollar did spike in May, gold’s price dropped sharply, demonstrating that this play can indeed work both ways. Goldman says the dollar might lose its reserve currency status. Argentina’s bonds rallied to the highest in nearly five months on progress in talks to restructure $65 billion of debt, with creditors getting about 54.8 cents on the dollar.


In some cases, this may look like increased taxes on gold miners, and in the worst case, it could mean outright nationalization of the gold mine itself. With the high price of gold hurting physical demand, we will have to rely on investors’ continued optimism in order to see even more gains. Finally, while investors have yet to be deterred by the high price, the record level is hurting consumer demand for gold, which could be a future headwind. Looking ahead, I believe there are some fundamental reasons investors will want to stay long gold, such as declining interest rates and vast government spending programs.
However, the high gold price environment will continue to provide material support to the company’s balance sheet even if Olympias stays a high-cost operation. With this key corner of the market facing headwinds, that should put a limit on how high the price of gold will rise in the months ahead. As investors bid up the price of gold, the consumer market gets negatively affected.
I now want to dive into a reason why I think gold’s high price has the potential to come down a bit.
After review, I continue to see some fundamental reasons why investors will want to use gold as a hedge going forward. While a difficult economy and Covid-19 uncertainty will encourage investors to hedge their equity or fixed-income positions with gold, the same macro-themes will negatively impact consumer demand.


Yet, the longer we continue with lower baseline prices in oil markets (looking to WTI crude oil prices in particular), the stronger the potential for EUR/CAD to transcend 1.60. Should oil prices struggle to gain further traction this year, net oil exporters like Canada could see some currency strength. Crude oil inventories likely fell 3.3 million bbl while gasoline stocks are estimated to have gone up by 0.6 million bbl. US crude oil inventories are estimated to have fallen last week while stocks of refined products went up according to a Reuters poll of analysts.
Additionally, the oil and gas segment made up 2.2%, leveraged lending made up 1.8%, and consumer credit cards made up 1% of total loans. The high exposure to vulnerable loan segments, including education, hotels, oil and gas, and credit cards, exacerbates the riskiness. Other oil producers are also expected to increase output this month after OPEC and its allies agreed to ease production curbs.
Other highlights on the earnings agenda include chip maker Infineon Technologies AG, drug and chemicals giant Bayer AG, oil major BP Plc and booze maker Diageo Plc. Malaysian palm oil futures rose for a fourth straight session, tracking gains in Dalian palm and rival soyoil. The point regarding oil markets remains key.

United States

But then COVID-19 struck, and the Fed responded with $3.2 trillion in relief, bringing its balance sheet to a whopping $7 trillion, which is about one-third of GDP. Now the Fed has intensified intervention to delay the effects of COVID, leading to an extraordinary Fed balance sheet of $7 trillion and growing. Starting in 2015 the Fed gradually unwound QE so that by 2020 the balance sheet had shrunk to $3.8 trillion, a $700-billion decrease. Much of this stimulus ended up in the stock market, but most importantly investors were comforted by the Fed’s actions – the Fed is our friend.
What can we say about exactly how much stocks affect the Fed, and how much the Fed affects stocks? Yet the US stock market returned 21% in the quarter. The Fed dropped $3 trillion in helicopter money into the economy in the quarter. The Fed made a heroic attempt to reduce its assets for a few years, but with the second crisis the apparent relationship is restored.
This, at the moment when Trump’s trade war has turned into a new ideological cold war targeting the Chinese Communist Party. If the market rose, the Fed would after a suitable interval start raising rates.


EU 2020/21 barley exports had reached 254,305 tonnes, down 60% from 2019/20, while EU 2020/21 maize imports stood at 1.01 million tonnes, down by 52%. There are concerns Boris Johnson’s pledge to promote a green recovery could be undercut by the Bank of England, which is effectively subsidizing polluters, the New Economics Foundation said. It was also slightly asymmetric, with the EU in particular far more likely to deviate on the negative side than the positive.
He is fighting to keep America as the seat of western power, and not to accede that role to Merkel’s European project – or to China.
German Foreign Minister Heiko Maas regretted the planned withdrawal, describing Berlin’s relationship with the Washington as “complicated.” Chancellor Angela Merkel was reportedly shocked. ECB staff stays home.