| |Trade War Tempest or Just a Squall? As the July 31st Fed interest rate cut was quickly overrun by the trade war tit-for-tat, we need to gain some perspective on expected impact of the US/China interaction in early August without the hype too often seen in the media. On August 1st, Trump stated that he intends to place a 10% tariff on the remaining $300 billion-ish in Chinese exports to the US as of September 1st. The prior statements were a 25% tariff (notably higher) and at an indeterminate date (easily ignored by the markets). A lower tariff that can possibly be fully absorbed by Chinese firms may ruffle some feathers but would not be a crisis. The Chinese response of cancelling nebulously-defined agricultural sales (note that pork shipments are full speed ahead, despite the existing Chinese tariff) would be partially matched off with lower US grain production from the poor spring weather. There are also some reports that the Chinese tempered their Brazilian soy purchases which implied intrinsically lower Chinese grain demand. In other words, this first response was justification for something they wanted to do anyway. … Read more Coloma Capital – Trade War Tempest or Just a Squall?
| |We had an interesting conversation with an extremely sophisticated allocator recently. He asked, given that you have had a good run with a long gold position this year, with large open profits, how much will you lose if it reverses hard and you are stopped out at lower levels?”. It’s a question that gets to the heart of trading, and ultimately deals with the difference between what’s known as open equity and closed equity … Read more AG Capital – Volatility Expansions and Contractions
| |The S&P 500 continued to climb steadily up to the last trading day of the month even though market participants knew that day could bring volatility, as the U.S. Federal Reserve (the “Fed”) was scheduled to announce their latest monetary policy update on July 31st. Speculation about their intentions to lower interest rates for the first time in ten years had been a market focus for months. Fed Funds futures pricing is often used to estimate the probability of pending Fed interest rate changes, and had signaled the most likely decrease to be between 25 and 50 basis points. However, when Charmain Powell announced the 25 basis point cut he also implied it might be a “one and done” scenario rather than a prolonged rate cutting cycle favored by market participants, causing an immediate decline in stock prices. The selling in the S&P was strong, sending the Index to its largest intraday decline since early May. In fact, prior to that drop, the S&P had not had a 1% daily gain or loss in the previous 36 consecutive trading days, the longest streak since early October 2018 … Read more Warrington Asset Management – Looking back on July
| |Following up on last month’s commentary, July featured lower than average rainfall and higher than average temperatures across most of the US’s primary growing regions. Interestingly enough these results were quite different than the NOAA long-range forecasts issued for the month. Specifically, most of the Corn Belt experienced maximum temperatures that averaged 2-4 degrees (F) above normal. As you can see on the left even with this year’s extremely wet spring, drought conditions are expected to develop in key growing regions of IA, IL, and IN. This is definitely something to keep an eye on as near perfect conditions will be needed to substantially increase row crop yields at this point … Read more JTM Capital Management – Major Factors Affecting Agriculture
| |U.S. farmers planted the final eight million acres of corn and soybeans in July. While that is a record and clearly the lead story for the agricultural markets, it was also the lead story in May and June. As most of the U.S. experienced better than expected weather in July, the markets appeared to grow weary of the “Record Slow Planting” story as the month went on. The futures markets for corn, wheat and soybeans all followed the same path: putting in their highs mid-month and then closing the month on their lows. All three markets were helped higher by the bullish wheat surprise in the July 11th WASDE report. The USDA cut their production estimate for our five major exporting competitors by a combined 10 million metric tons (MMT). Chicago wheat futures quickly rallied 25 cents and the other markets followed … Read more Third Street AG July Commentary
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