Arabica closed the day 111.55, -.50 in relatively quiet trading with robusta the focus. London finally began the process of reaching a denouement, with 4510 N/U trading mostly at +100. The identity of the short is of keen interest, although mostly from a gossip mongering rather than trading perspective. With expectations of spread strength continuing into the near future 3900 U/X traded, closing +5 at +15. This provided some support to the flat price which settled 1681, +9. An unimpressive futures rally on the surface perhaps, yet when one considers NY’s performance the light in which it is painted brightens a bit. It will be interesting to see at what price the roughly 3000 remaining lots are cleaned up in N, and whether the exchange will allow a bit more upside for the long considering the dearth of stocks and the risk they have borne.
Arabica (114.80, -.25) closed a mixed day lower, yet posted a second higher high, higher low in the process while consolidating the prior two day’s gains. Discretionary buyers seemed emboldened, both speculative and hedgers, as roasters chose to extend already long positioning into shallow dips and trade/managed money/systems all contribute to the cause as well. Origin was noted in drips and drabs throughout – albeit in less than impressive volume from our vantage. Curious trading appeared moments before the settlement period as a 1000 lot sale overran bids ever so briefly. KC proved resilient however, with the final intraminute print a single tick above the initial price for good measure. Whether a statement trade, error, or clumsy execution will be forever unknown. The VWAP for the day matched the settle – both coming in at 114.80, 30 points above the final print. London closed the day up $10 at 1705 with OI remaining robust in the front month / delivery period July contract. Certs have ticked higher by a few lots in recent days and do not appear to be an exit plan. N8 traded a mere 2 lots on the day, both as part of the spread as the standoff continues. N/U settled +85, unch.
Expectations for another record large short positioning in Arabica against a backdrop of cooler temperatures forecast in Brazil allowed for futures prices to ascend on Friday, having made new contract lows in the very same session. Whilst commercially led buy interest had been noted over the last few sessions, the aggressor of Fridays move is likely to have originated from speculative short covering and options gamma trading. Robusta also saw steady buying for Fridays session allowing futures to retrace approximately 50% of Thursdays technical break lower. Despite this recovery futures did manage to achieve a new contract low earlier in the earlier session printing $1610 basis Sep18. Conjecture for both markets observed a broad expectation that shorts were somewhat over extended basis their percentage of exposure to open interest.
Robusta spreads continue to command premiums as the market awaits to see how the July tender situation will be resolved, most hold expectations of increased Brazil grading’s, but the window for significant material to come to the board for Jul18 continues to shrink. The July /Sep subsequently broke higher printing +75. Sep/Nov continues to take heed of the nearby delivery month and is perhaps also somewhat steadied by the record short which is concentrated in the front month (assuming that this will have to be rolled or covered).
Weekend weather reports on Sunday called for Brazil coffee producing regions to remain dry and warm, but this week’s temperatures should start to trend slightly cooler. Vietnam, Indonesia and Colombia will continue to receive periodic precipitation and thunderstorms. Remnants of Tropical Storm Beryl will yield moderate showers in areas from Puerto Rico to Cuba early to mid-week this week.
From a macro perspective UK Brexit risk and trade war rhetoric has reared its head again this morning, following increased stress on British PM Theresa May. Oil prices rose on Monday as investors focused on tight market conditions after data late last week showed U.S. crude inventories fell to their lowest in more than three years. This rally appears to have shaken off worries that China could impose tariffs on US oil exports. The US Dollar was seen marginally weaker in early trade on Monday.
The BRL could see increased volatility from trade war tensions and political upheaval after initial reports that former president Lula da Silva was to be released from jail. This decision was however quashed by an appeals court on Sunday. In this Sunday afternoon ruling, Judge Pedro Gebran Neto overturned the shock order to free Lula.
Brazil judge blocks order to release of Lula from prison
BRASILIA (Reuters) - The chief justice of a Brazilian appeals court blocked another judge’s efforts to release imprisoned former president Luiz Inacio Lula da Silva on Sunday, in a legal battle over the country’s most popular politician ahead of an October election.
Polls suggest the leftist icon, who is in prison for bribery, could win a third term if he entered the race, but Brazilian electoral law forbids politicians from running for office within eight years of being found guilty of a crime.
Still, an electoral court may not issue a final ruling barring Lula from the presidential contest until next month, creating a cloud of uncertainty hanging over the campaign. Sunday’s legal back-and-forth may encourage supporters holding out hope that he can still return to unite Brazil’s left.
Appeals court judge Rogerio Favreto, who served in the Justice Ministry under Lula and was appointed by his handpicked successor, ruled earlier on Sunday that the former president should have the same conditions to campaign as other candidates.
However, the chief justice of the TRF-4 appeals court, Carlos Eduardo Thompson Flores, granted a request from prosecutors to keep Lula in prison, blocking Favreto’s ruling.
The former president is serving time for taking bribes from an engineering firm in return for help landing contracts with a state firm. He faces another six trials for other corruption allegations. Lula has denied any wrongdoing.
In polling scenarios including Lula in the race, he wins more than twice the support of his nearest challenger. When he is left out, a third of respondents say they would spoil their ballots or leave them blank.
hat has made it harder for leftist candidates such as former Ceara Governor Ciro Gomes to build momentum in a highly fragmented field.
Support for former Sao Paulo Mayor Fernando Haddad would more than triple with Lula’s backing, lifting him to second in the race, according to a survey last month.
Reporting by Lisandra Paraguassu and Ricardo Brito in Brasilia; Additional reporting by Eduardo Simoes and Ana Mano in Sao Paulo; Writing by Brad Haynes; Editing by Daniel Wallis and James Dalgleish
Our Standards:The Thomson Reuters Trust Principles.
Hedge Funds Boost Net-Bearish Robusta Coffee Bets to a Record
(Bloomberg) -- Money Managers have increased their bearish robusta coffee bets by 1,137 net-short positions to 35,648, weekly ICE Futures Europe data on futures and options show.
Global Coffee Deficit Est. Raised to 1.4M Bags for 2017-18: ICO
(Bloomberg) -- That compares with previous est. for a deficit of 254,000 bags and a surplus of 1.2m bags a year earlier, the International Coffee Organization says in report.
New York settled with a 50 point gain at 117.70, aided along by a short term systems and momentum buying in the wake of a greener macro. KC managed to trade a fifth consecutive higher high, tallying 445 points above the 114.95, 27 month plus lows of the 19th of June. For the past 2 months, KC has found the 9 day moving average to define support and resistance, and today it took it out and closed above for the first time since the market gapped higher, from 118.55-120.20, on the 22nd of May. Skeptical selling came to the close which took prices back to the early morning lows, putting up a 3rd day of higher closes, its best string in over a month. A bit of early confusion surrounded London’s notices which ultimately amounted to 2 lots of conillons. Open interest in July remained at 8,250 lots entering the day as some traders were said to have been caught off guard by the new contract rules and earlier delivery date.
First notice day saw 954 notices issued and KC settle at 116.25 down 40 points, the lowest close since the 17th of April. Open interest fell by 4,922 lots and with July down to 1,715 lots entering the day notices were taken with a grain of salt. Intraday rhythm closely tracked that of the BRL which weakened slightly on the day as the BCB sold its biggest lot of floating rate bonds since February of 2016, in addition to its daily regimen of selling FX swaps in an effort to support the currency.
Outright flows were largely spec to spec at the lower end of the 27 month range. While first notice day being out of the way did not provide a relief rally it also removed any sense of urgency.
Coffee fell 85 points to settle 116.70, broadly influenced by the BRL and a weak overall commodity complex. Attention was very clearly elsewhere for many traders with the World Cup a prime culprit. Productivity concerns aside, traders seem to have reached an agreement that the path of least resistance and highest probability is lower. Robusta engagement was low up until the close, suffering a $3 loss to close 1687. MOC selling pounded the market into the red as spreads weakened a touch for the upcoming two periods (N/U +14, -2 and U/X -6, -1). Colombia elected a new pro-market President, Ivan Duque. President Duque is seen as an extension former President Alvaro Uribe & termed a “creature of Washington.” The currency weakened slightly on the day, helping producers balance the futures market loss.
Following yesterday’s Fed announcement when expectations for rate hikes were raised from 3 to 4 in 2018, the dollar index rallied to its highest level since the 30th of May, the day after 2 ½ year highs were posted. Dollar strength weighed on commodity prices as all but 5 of the 22 commodities in the Bloomberg Commodity Index traded down on the day. The BRL actually traded a tad firmer, as the BCB continued its regimen of providing liquidity by holding a second extra auction of 40,000 FX swaps. KC activity was subdued in the outrights as prices traded to their lowest since the 18th of May. Since the gap was filled a week ago the market traded in a 245 point range. July/Sep traded between 230 and 210 under 26,805 times, 3,479 July/Dec’s traded between -585 and -565, and 6,557 U/Z traded between 355 and 350 under as positions were rolled down the board.
New York started the week with its first higher high and higher low in six sessions settling at 119.20 down 30 points as September open interest surpassed July’s following Friday’s July option expiry. A negative, at face value, COT report initially weighed on KC with losses confined to 105 points, however once the FX markets became active downside was buffered as prices closely tracked the rhythm of a steady Brazilian currency. Funds covered net 7,859 lots over the reporting week and the gross commercial short grew by 7,164 lots validating that origin were active hedgers as prices rallied from 121.65-127.15. Worth noting is the gross index short, whose historical average since inception in January of 2006 is 4,283 lots, now stands at a record 21,809 lots, surpassing the previous weeks record by 4,360 lots. The gross index long grew by 4,708 contracts, ergo the net position only shifted 348 lots longer. Spreads accounted for the lion’s share of the day’s volume as 40,612 traded. On day 3 of the traditional index roll July/Sep changed hands 29,336 times at steady to firmer levels between 225 and 205 under.
A 4th day of losses tallying 545 points as KC relinquished 120 points to settle 5 points off the low at 118.25 basis July. Open interest jumped by a 3,400 lots on Tuesday’s 2 cent sell off after dropping 8,539 lots during the previous 2 days losses as it appears long liquidation has yet again led into systems piling on new shorts. What took 2 weeks for the market to rally from 117.10-124.95 in an all too familiar pattern, has taken 3 days to essentially give it all back. Industry took on cover in rote fashion, while origin remained quiet in spite of a BRL trading to a new low ( $/R 3.84) on a day when most major currencies were firmer. The 117.10-120.20 gap higher on the second month continuation chart remains open for a 12th session. Over the past 3 years there have been 8 gaps higher, the longest of which, in June of 2015, took 12 days to fill while the others were filled within 5 sessions. Might as well get it over with?
KC (122.55, -1.15) started the day with quiet trading around unchanged, slipped ever so slightly as the Americas day began, and then returned to their upward trajectory on the back of what appeared to be spec short covering – with a bit of a roaster assist. However, Brazil selling began to arrive, in admittedly shy manner to start, and by the time it was announced that Petrobras CEO had resigned the low was in. More sizeable origin offers were scaled in towards the day’s high, yet as is often the case the opportunity had passed for the moment. Sentiment seemed to swing with the price and traders who were reevaluating their upside targets in the morning sounded something approaching bearish by the end of the day. Nonetheless, the month begins with a higher high, higher low, and with the market settled comfortably above the 100MA. Interesting if flat price irrelevant were the 108 AA’s passed in the March 2021 contract. Robusta closed 1750, -2 in the first day of trading with N as the spot month. May deliveries totaled their largest amount (6871 lots) in 7 years.