In the US there are 7.5 million job openings and 6.2 million people unemployed, a dislocation between required and offered labor-skills, which becomes more challenging for employers, due to a slow issuance of work-visas and for workers to speed up on the needed qualifications.
After March non-farm payroll showed a low unemployed rate and lack of inflation pressure from wages, president Trump renewed his pressure for lower interest rates and a for a new wave of quantitative easing, both music for equity players’ ears – and 401K holders, for that matter.
Investors are pricing a 57% chance of a rate cut in 2019 and with positive news mentioning China willingness to reach an agreement on the trade-war the S&P500 rallied and it is now at shooting distance to historical highs.
Risk appetite led the CRB to the best level of the year – and since November 2018 – led by gains in cocoa, energy and grains.
Coffee in NY and London took a ride on commodities moving up last Wednesday, but it could not sustain and both gave back their gains.
The technical recovery stopped-out some specs, helping the front-month contract to trade above US$ 95.00 cents per pound and uncovering selling interest from origins.
Business-flow improved with Wednesday’s rally, when the “C” gained U$ 4.20 cents (the high of the day) and then with the follow-through we saw on Thursday, when May19 trade up to US$ 96.95 cents a pound.
Farmers released more coffee on most origins allowing exporters to cover part of their needs at the same time that demand showed up, with deals taking place only at slightly better differentials.
In Brazil the harvest has started in some areas, isolated (and premature) for arabicas and a bit earlier than usual, but at the right fruit-stage for conies – mostly in Rondonia.
According to CEPEA, official government body, the flowering that took place in August last year and the heat-wave that the fields went through this year shall make the harvesting-pace to pick up in general already at the end of April.
New forecasts for the 19/20 crop were released last week, with Safras & Mercados estimating a production of 58.9 million bags, divided between 40.7 million arabica and 18.2 million bags of conilon. while Italian roaster Illycafé sees a total output of 55 million, 38 million of arabica and 17 million of conilon.
Considering a table with more than ten forecasts, compiled by a local broker in Brazil, the upcoming crop will range anywhere from 52.5 to 60.8 million bags, with arabica staying between 35 and 41.4 million and conilon between 15.2 and 20 million bags. The difference of 8.3 million bags is greater than the entire production of Honduras, for instance.
Reuters mentioned in a recent article the intention of Brazil to launch a new “put-option” plan, using the same format of the one done in 2013 and citing that sources are seeking to either implement it this year or during 20/21 cycle, an “on-year”. Given the current drama that Bolsonaro’s government is going through and the profile of his economic team, one would find it difficult for any action to take place in 2019 – to say the least.
Back to NY the OI decreased 14,281 lots in the last three sessions, probably mostly spread-related, but as in two of the past days the market moved up the funds’ position shall be at least about 5K lots less short than the 77,303 contracts net-short seen on the COT – not encouraging.
On the other hand, commercials showed that they still have the capacity to extend further their buying as their gross-long position hit a new record of 164,948 lots, or 46.76 million bags – less than half of the World’s arabica production, considering ICO’s 18/19 figures.
The US dollar halted, for now, the appreciation, but the Real is always a wild-card, susceptible to the uncertainties of the current government.
May-options expiration this coming Friday might make those who are short near out the money puts a bit anxious, especially if the market does not manage to get away from the contract lows.
NY failed once again to hold gains exposing the market to the downside, where support is at 91.25 then 89.90 and 86.50. First resistance for the May19 contract will be at 96.95, followed by 98.70, 100.95, 102.00 and 105.20. London recent low at 1395 if broken could attract more sellers seeking then to test 1339 and 1313. Resistance levels are at 1480, 1504, 1543 and 1595.
I am looking forward to seeing you at the refreshing and inspiring EXPO in Boston!
Have a nice week and good trades.
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