03 December 2018 MONDAY Trade Commentary

G 20 Meeting Over the Weekend

President Donald Trump met with Chinese President Xi Jinping at the G20 Summit in Buenos Aires, Argentina on Saturday. Trump agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% as he previously committed. China will agree to purchase an unspecific amount but “very substantial”, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between the two countries. China has agreed to start purchasing agricultural product from our farmers immediately.

President Trump and President Xi agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both the China and U.S. have placed a 90 day time frame on completing a deal. Once that 90 days is up, the 10% tariffs will increase to 25% if no agreement has been reached.

The FED – Interest Rates

The US FED seems to have tempered its 2019 rate hike outlook.  This means without a tightening of labor and signals of inflation would likely be required for the US FED to initiate plans to resume any further rate hikes over the next few months.

Gold: With the US FED not likely to be aggressive in hiking rates right now, the US$ Dollar could top and get weaker.  This would likely mean higher gold prices for the short-term.

Crude Oil, Soybeans, and Corn:

Crude Oil:  This Thursday, December 6th is the date for the OPEC meeting.  If there are any oil cutbacks or imminent intentions, there could be some recovery rally in crude prices.  For now, the best-scenario for oil prices is a full retracement up to near $65 a barrel.  For we option-sellers, even such optimism might leave the $75 to $80 strikes out of reach (a “good thing”), but neither would I be selling them until I hear results and news from the OPEC meeting this week.  I have considered that the PUTs at $40 and lower might be worth examining.  Oil could begin an upside retracement this week but without some OPEC cuts, it might not be sustainable.

I put up an article on the SellingCommodityOptions.com blog that has some generic information and illustrations about United States Crude oil production and a longer-term outlook for oil prices.  It also has a geographic breakdown for United States oil output. Please see this article: Option Sellers Could Find Opportunity in Crude Oil Prices for 2019

Soybeans and Corn:  The news from G 20 might be described as encouraging but vague.  China has agreed to do some amount of buying US agriculture crops – that’s is unspecified amounts and prices.  Still, it is probably enough news to create higher prices in both corn and soybeans in the coming week.

Summary:   The G 20 news of the 90-day postponement of tariff hikes will be positive for grains.  In the bigger picture this bodes well for the world economic view to remain more positive than negative.

After we get news from OPEC’s meeting this Thursday, it could be a few trading sessions before any normalcy returns to the market.  Any price actions from technical overreaction could help shape some longer-term strategies.

If you are not familiar with the expectations for the OPEC meeting this Thursday, this article from MarketWatch has a fair summary:  Here’s what’s at stake in the oil market when OPEC and Russia meet next week  by Myra P. Saefong

I wish a good week to all.  To state the obvious, there is a lot of uncertainty going into this week.   Thank you – Don

note added at: 6:33 pm (Sunday) EST: the DOW futures are up +472.00 at 26,003  !

Don A. Singletary






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