When living pretty far on the east from Ney-York, it was kind of a waste of time to wait until 11pm to wait for the FOMC. It was supposed to be ‘Yellen, the force awakens’ and it’s actually been rather sleepy. The real hope of the market was 50bp and it’s been the widely expected 25bp. In the hour following the announcement there was not even a dramatic volatility, EURUSD went first lower sharply to 1.0886 then rebounded and rally to 1.1006. It went back trading down, more slowly during the night to touch a low point of 1.0830 and currently trades above the 1.08-50’s. So surely slightly softer, market will technical look to go back on the 1.08 support and then next zone would be the 1.06 area. On the upside 1.11 stays the main zone of resistance. Slightly disappointing indeed for something that did not happen since almost 10 years! FED think the US economy has come strong enough to begin to gradually increase rates. Yellen showed her confidence in the health of US households and domestic spending despite the fact the manufacturing sector and energy sector are still in tough positions. Also, the low inflation (close to 0% while the objective is 2%) did not prevent the FED from raising the rates. According the the FED waiting too long could create risk of overheating the economy. It is welcomed with skepticism: firstly it doesn’t change massively the framework of cheap money and QE is not over by any means. Also, even if it was expected, some say it might be too early for the US economy. Finally, some say FED just raised the rate insignificantly to be able to decrease it in the future without going to negative rates.
Wheat, Corn and Soybeans finished sharply down. Funds sold -10,000 corn, -4,000 wheat and -5,000 soybeans. If the effect of the FED rates is logically respected, the dollar would strength and US labelled commodities less competitive. Soybeans were still digesting the disappointing NOPA crush data, bringing Corn down while Wheat had no reason not to follow the bearish mood. MATIF closed well before the main event of the day and was as well red across the board with no major currency move. Some end of year resignation to sell? French Coops are holding their General Meeting and they obviously try to show a good face: on the agronomy side, it’s been a very good crop (apart for Corn maybe) and the next crop is starting on encouraging basis. But on the price side, they are clearly implying that farmers seating on their stockpile is worrying, with high availability and cheap prices everywhere (especially in Black Sea), France need to export, farmers need to sell… Has it actually started? If so, this should be combined with a cash premiums decreasing as well. There was a decent amount of bearish strategies traded on the MATIF yesterday (put, put spreads, put spread versus calls,…). Bird flu is beginning to be worrying with 30 farms hit by the outbreak in South West of France.
Corn was probably helped also by bearish ethanol data. Ethanol production was up 7,000 barrels per day last week, but all the production and more went in stocks: stocks increased by 493,000 barrels last week, reaching 20.32M barrels, a 6 months high. Ethanol futures reached on their side a 3 moths low. Crude Oil was no exception to the bearish mood and the recent recovery to close to $38 per barrels has been killed and it’s back just below $35.50.
And obviously Argentina news could be seen as a factor to put pressure on prices. Another currency news indeed yesterday. Argentina peso hit fresh historical lows to 9.8270. Indeed, it’s been announced Argentina will lift foreign currency controls and will leave peso floating. Most analyst expect a devaluation from 25% to 30%. Combined to the export tax decisions, there is some fears exports will drastically increase from one day to another.
On the weather side, no major change to notice. US weather stays slightly warmer than usual with lower amount of precipitations. But it’s improving in South American, rain is coming back nicely and in Black Sea rain and snow is showing up. More snow is needed in the norther hemisphere… The risk of winter kill is still to be considered if temperatures are dropping quickly in January. Russian Agriculture ministry confirmed their objective of harvesting once again more than 100MT in 2016.
Tunisia bought 100,000T of milling wheat between $196.50 and $198.85 CNF and 50,000T of barley at $188 CNF. Japan bought 24,000T of feed wheat and 28,000T of feed barley, they were seeking originally respectively 120,000T and 200,000T so obviously price was not good enough.
Night session is still weaker on the soy and oilseed complex. Wheat and Corn are more quiet, small down for the first one, and small up for the later. MATIF is expected to open flat so far.