Open: New York Session | Forex, Metals, Oil, Agriculture August 28, 2020



In its monthly update, the inter-governmental body increased its global corn crop forecast by 2 million tonnes to a record 1.166 billion tonnes. MARKET NEWS Chicago corn futures rose for a second consecutive session, while soybean prices gained on expectations of strong Chinese demand. The estimated 6.5 million hectares that were planted with wheat this season was reduced from an original forecast of 6.8 million hectares as growers grew nervous about the dryness.
Prices for rice, soybean and corn have risen recently in the domestic market. Raw sugar futures closed up on ICE on Thursday, reverting a recent multi-session decline, as Hurricane Laura caused some problems to cane fields in the U.S. state of Louisiana.


The domestic currency strengthened to its highest level in more than five months, helped by dollar inflows into the equity markets while gains in Asian peers also aided sentiment. Along with good FPI inflow, the dollar weakness can push the rupee upwards.Trade strategy The rupee, after opening flat, is exhibiting a significant bullish bias. In this regard, it is likely that, unlike risk-on currencies, the Canadian dollar will take longer to rise against the Japanese yen.
Moreover, judging from the reaction of the foreign exchange market participants, after the announcement of the pandemic, the yen was a safer currency than even the US dollar. Another factor supporting the Canadian dollar will be investors repricing the probability of a coronavirus vaccine development, which could weaken the demand for safe haven currencies. Watch whether a U.S. phase four fiscal stimulus package is passed, as otherwise the discontinuity of fiscal support will lead to a significant risk-off and dollar bullish event.
That s important a year ahead of elections when he may want to temporarily support the kwacha to keep inflation in check through dollar sales. In Asia, the U.S. dollar s weakness has helped stem capital flight, allowing local currencies to strengthen, curbing inflationary pressure. MARKET NEWS Gold rebounded nearly 1% as the dollar retreated and investors latched onto dovish policy signals from U.S. Federal Reserve Chairman Jerome Powell.
The benchmark Topix fell as much as 1.6% before ending the day down 0.7%, while the yen climbed as much as 0.4% against the dollar.


Gold should equal the price of the stock market, but the suppression of the price of gold and inflation in stocks skewed that relationship. The company had copper sales of 759 million pounds and gold sales of 184 million ounces with unit net cash costs of $1.47/pound and capital expenditures at $527 million. The company’s copper sales will increase by 33% from 2020E to 2022E and the company’s gold sales will double from 2020E to 2022E. Now that we have worldwide demand for gold unlike any we have ever seen, gold is rising fast.
Long-term market fundamentals support higher copper prices, and the company is trading at a post-transition FCF yield near double digits. With copper prices above $3 per pound, the company stands to earn 2021-2022 average EBITDA of $7 billion and operating cash flow of roughly $4 billion. The company has had strong execution of its operating plans, supported by a recovery in prices, especially gold. This means that the market believes that the most undervalued asset to the gold market is silver.
In fact, with gold prices at near $2000/ounce, that means $160 million more in annualized cash flow.
Prices of stocks, bonds and gold all made several U-turns on the news, while equities attempted another green session overnight.


Fuel oil inventories fell the most by 244,000 mt to 1.1 million mt, which is the lowest level seen since early March. The palm oil industry has received international negative attention, including consumer boycotts, in recent years for clearing biodiversity-rich tropical rainforests in Southeast Asia in its production process. Then, it became a fiat currency, backed by oil, and has fluctuated ever since, declining in value by more than 90% since 1971. Finally, Marathon Petroleum has announced plans to shutter crude oil processing at its Gallup and Martinez refineries.
Initial reports indicate only minor damage to oil refineries and production facilities. Gasoline inventories dropped last week by 19,000 mt to 1.38 million mt. Reflecting this mood, the front month Brent futures contract was trading at $44.85/bbl, down by 0.53% compared to the previous day s settlement. For investors interested in the refining sector, I recommend following the VanEck Vectors Oil Refiners ETF (CRAK).
Oil prices pared losses. Oil nudged down as Hurricane Laura weakened.

United States

Wall Street futures were higher after the Federal Reserve’s policy shift on inflation suggested an extended period of low interest rates. The reason: avoid any market tremors for the next five years arising out of fear that the Fed may unexpectedly tighten financial conditions if inflation suddenly gets hot. Bond yields rose quite significantly, while inflation breakevens continued to increase while staying well below levels that would test the Fed s commitment to letting the economy run hot.
That policy worked, but the economy has now moved on to a point where the Fed needs to promise not to raise rates, even if inflation takes off again. The Fed announced it is changing the policy in relation to inflation, which they would like to see at 2%. Powell’s two key points from Jackson Hole (Week Ahead: No Jackson Hole in One) The Fed aims at 2% inflation on average. With inflation remaining stubbornly low, few seem to believe the Fed can engineer an overshoot of their 2% target any time soon.
This tells you it is extremely unlikely that the Fed would preemptively raise interest rates because of a strong labor market where inflationary pressures aren t above 2%. When the Fed Chair spoke about inflation, the market rallied from $1945 to $1987 in about 45 minutes, apparently discounting his words. At this point, it would be silly for the Fed to leap in and try to squelch any nascent rise in inflation just to keep it at 2%.


Beijing warned Norway against giving a Nobel Peace Prize to Hong Kong protesters. Ties between Oslo and Beijing have been turbulent following a 2010 decision to award the Peace Prize to then-jailed and now deceased Chinese democracy advocate Liu Xiaobo. Beijing warns against giving Noble Prize to Hong Kong protesters.


In fact, the pace of buying slowed down already in early July, while normally the ECB has slowed down its pace of asset purchases only in August. As a result, the ECB is unlikely to fight modestly higher spreads in the coming weeks by buying bonds more aggressively. However, we believe the ECB will be even less likely to accept premature steepening and it has the tools to prevent it. The ECB can naturally accelerate the pace of its purchases at any time it wishes, given the in-built flexibility of the programme.
ECB PEPP pace The ECB is widely expected to change its target to a symmetric 2% target when concluding its Strategy Review (ECB Watch: Thoughts on the Strategy Review).
The British government has begun researching a new post-Brexit customs IT system, with four months to go before it s set to go live. Therefore, it will be very easy for the ECB to increase the weekly PEPP pace should curves steepen too much. EU plans green and social bonds to fund economic recovery. In fact, we believe the PEPP has created an ECB inflation put (ECB Watch: The inflation put). EU foreign ministers are due to discuss Turkey s dispute with Greece and the bloc s relations with Russia on the second day of their meeting in Berlin today.