Apr 16, 2017 - Weekly Commodity (Oil stock decline, bearish Wasde report but huge net short in corn and wheat, no sweat future for sugar)

The highlights of the last week are decline in oil invetnories and oil supply and demand getting closer to balance. In the Agricutural sector the long awaited WASDE report didnt surprice rather confirm expectations however concerns regarding heavy raining in Argentina closer to the weekend pushed prices of Soybean and corn higher. Indian suagr imports caused cautious correction but prices couldnt clos the week above 17 cents.

Crude oil had a great week after API and EIA both reported decline in oil inventories in line with expectation of a seasonal drop as refinery demand picks up. The move was supported also by rising geopolitical tension. The Paris based IEA when in its monthly report the agency said, the oil market is getting close to balance but expects global production to rise due to rising US production. Based on Baker Hughes report, US producers launched another 11 oil rigs last week taking the total US rig count to 683. Due to weaker than expected demand growth in Russia, India and several Middle east countries, South Korea and US, the IEA revised its 2017 demand growth from 1.4 mb/d to 1.3 mb/d. However as global stocks declined , according to the report “it can be argued confidently that the market is already very close to balance“.

As the market seems to be a little overbought after breaking the key resistance zone 50-52 and also uptrend line. On its way WTI prices rose from March bottoms to April tops in only 3 weeks 15%. Now a possible pullback to the up-trend line could offer a great buying opportunity. Key points to watch will be:

• Regular reports from API and EIA inventories
• Situation US/Syria/Russia/N. Korea
• Opec meeting on May 25 to consider extending output cuts beyond June

Grains had a mixed week after the hedge funds turned net bearish on the sector according to CFTC COT report. In USDA WASDE report published on Tuesday, US corn ending stocks estimates remained unchanged and wheat ending stocks estimates were increased by 30m bushels. The global ending stocks forecast for both increase by more than 2mil MT each. Export sales were just below the expected range for corn while at the upper end of expectation for wheat. In case of wheat there are concerns regarding slow pace of shipments. Here could come a negative surprise in the coming weeks as due to slow export shipment the USDA may be forced to downgrade its export estimates. Both grains saw intensive buying (or short covering) after the WASDE report however wheat gave back part of its gains before weekend 

The USDA soybeans ending stocks estimates were higher by 10 mil bushels to 445 mb, which was more than expected. Also world ending stock estimate was higher than in March by more than 5%. However the prices bounced back the same day as bears lost strength. The dramatic change in the mood on Soybean market came on Friday as weather concerns in Argentina got more spotligth.

According to US Department of Agriculture's Brasilia bureau strong corn harvest is expected in Brazil and end stocks in the country should jump as much as 70%. There are some concerns regarding the weather in Argentina as more than 1m ha of cropland was flooded. The most rain hit areas last week were already flooded so the impact of current heavy rains will be limited and as dry wheather is expected in the coming weeks the harvest will most likely continue soon.

This seems that the current picture is supporting the bearish positioning of hedge funds. However traders should be careful a skewed exposure to the downside often results in high volatility due to surprise news. And we all know from history that negative wheather surprise is a matter of time after such a long period of good weather conditions.

The last commodity we follow the last weeks is raw sugar where there is a huge head and shoulders confirmed after last Friday bulls faild to break above the descending neckline. After the price of raw sugar in NY jumped above 17 cents per pound this attracted seller and sugar was down again well below 17 cents. On reason why the mood turned little bullsih was the Indian government decision to approve duty free import of 500k MT which is much ess than expected. Another reason could be that Sugar options are expiring on Monday and as a large number of ITM puts should be expired this can result in profit taking lifting the prices higher. Money managers keep 105k lots short but net positioning is still 43k long so no danger of short squeeze at the moment. 

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

Contact: landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com

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Feb 9, 2017 - Data Alert: IEA Monthly oil report Feb 10 at 09:30 GMT

This is a long awaited week for the oil traders as the Monthly Oil Report from IEA will be released on Friday. The report will give us the first information about how compliant were the OPEC members in January with the production cut agreement. As this will be released as the first monthly oil report it could be more important than the Monthly report from OPEC which will be released on Monday. If trading Crude or oil currencies (CAD, NOK etc.) be ready for some extra volatility. So let’s look at some key points from the last report + positioning data and what could be expected.

IEA Monthly oil report 10th February GMT 09:30

OPEC oil report 13th February 

OPEC Oil Supply

The supply from OPEC fell from record highs in December  by 320 kb/d  to 33.09 mb/d after lower output from Saudi Arabia and Nigeria. The key will be to see more cuts in January as the OPEC members follow the agreement on production cut.

World Oil Supply

As the coordinated production cut raised prices, this stimulated rincreased production in US and other non OPEC countries (even some of Non-OPEC producers agreed to join the cartels production cut). This together with increasing supply from Iran, Libya and Nigeria will be the major headwind for any rise in oil prices in the medium term.

Oil Demand

The demand for crude was increasing in December 2016 driven by colder weather and rapid industrial growth in Asia. On the other hand the market expects a decline in 2017 from 1.5mb/d to 1.3mb/d due to higher products prices and warmer weather conditions. Demand had important role in depressed crude prices even this side attracted less headlines.

Money Manager positioning

This will be key the coming weeks despite the bullish charts and the eventually bullish news. According to CFTC COT report the hedge funds are positioned extremely onesided as net longs are at record highs. Furthermore this net long has risen recently rapidly despite growing inventories. This wouldn´t be the first time the last 12 months to see hedge funds being trapped. Remember, these traders are very flexible, ready to exit the trades quickly to cut losses therefore any bad news can lead to a huge long liquidation. The other side of the coin is, if all of them are long (with a little exaggeration)… who will buy and push the market higher if the news are good? Well, we'll see, obviously there is always some money out there waiting for opportunities. Nevertheless, be ready to sell if the market shows signs of weakness as it could become a carnage at the end.

Producer positioning

On the other side of the barricades the producers increased their hedging activity in the last weeks growing their net short to record highs. For most of the US shale oil producers the prices close to 60 dollars are enough to make production profitable and the increasing rig count also shows that the capacities are reopening which will offset part of the OPEC production cut.

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

Contact: landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com

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Sep 18, 2016 - Bank of Japan meeting (Sep 20-21) – a comprehensive policy assessment

The decision making will be “pretty difficult” as their fellow colleagues from FOMC will be deciding on exit strategy couple of hours later the same day. Actually, we believe they already know about the FOMC decision at this point.

But let’s focus on a few facts about BoJ first:

-          Expecting a comprehensive assessment of monetary policy, its tools and effects, economic activity – positive words, not really pointing to negative effects

-          Confirming that negative rates and asset purchases helped to lower the funding costs for corporates, not caring much about banks

-          …but all of that is very questionable for banks as their profit margins got squeezed or turned negative (latest call on BoJ officials from one of biggest Japanese banks to take into account negative effects of low or negative rates). Also the pension funds and savings suffer what is not offset by rising consumption of aging nation as Japanese are. From this perspective, the Japanese companies are more worried about pension obligations than effects of borrowing costs on their business.

-          Actually the aging and heavily indebted economy is becoming less and less flexible and responsive to any policy actions to ignite the growth and inflation. Japan as a country will have to face very tough structural reforms and need to globalize the corporate sector more in the near future.

-          While looking at the asset purchases of stocks, corporate bonds, ETFs…etc., we are not sure whether BoJ, already in some cases a significant shareholder of some companies, is analysing its steps, influencing the board decisions…etc. – what is really insane just as a fact itself that central bank is a shareholder…!!! Aren’t we witnessing currently a global nationalisation…?

-          Inflation still well below 2% target with long term expectations being very weak too (don’t blame oil only)

-          Economy still not able to grow at desirable pace but some positive signs are here

-          The yield curve has started to steepen recently – a sign of markets expecting something from BoJ (for example more flexibility with bond purchases, reducing of purchase on longer end or tapering…etc.). Bear also in mind that any spike up in JPY may be short lived as higher long term yields are usually negative for JPY.

-         Opinion split between BoJ officials, as well as officials and government is becoming more visible (more negative rates vs bond purchases vs none of them).

Our expectations:

-          Overall we expect BoJ to be very bold about its decisions but still may disappoint the markets as Kuroda’s team will keep some room for a follow up action after FOMC decision. In other words they will come up with a bit more flexibility, few tweaks of QE, eligible assets (local or foreign bonds), maturities...etc. and as a reaction the USDJPY will be falling towards 100, then reaching the recent lows around 99, and if there is no action over coming weeks/months it can even move lower to 95 or so.

-          Further rate cut is possible, especially as an attempt to widen the yield spreads with US Treasuries once the JPY starts to strengthen again and also to move more from JGB purchases in order to steepen the yield curve at long end, thus giving the banks a chance to increase margins (deposits vs loans).

On the upside we see for USDJPY the resistance levels at 102.50, 103.50, 105.00 and 107.50. From technical perspective closing on weekly chart above 104.50/105.00 levels opens the sky as a limit for USDJPY.

-          Next meeting is on Oct 31-Nov 1 but the action (for example intervention) can take place even before that meeting especially, in case of significant JPY strengthening to USDJPY 100 or below level

-          Improving predictability and communication/guidance would bring lots of clarity to markets. May be they are not sure what to do or are split and that’s why they do not communicate properly (Fed officials come to my mind with this point as well)

-          As per CFTC commitments of traders report as of Sep 13, 2016 the speculators were long 57k JPY futures contracts vs 54k previous week what may tell us that the market has either doubts about BoJ actions or is not expecting the move

-          In case of a combination of no action from BoJ and Fed we may refocus ourselves on US presidential debates and elections on Nov 8, as the range bound trading will continue once the dust settles.

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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