Morgan Stanley Coffee Report - January 27, 2021

Arabica rallied 125 points to close 124.50, lifted by an FX tailwind for the bulk of the day.  Prices continue to trade around bunched moving averages, with plenty of stories on both sides of the argument yet with more known unknowns than new catalysts.  The COPOM (open market committee of the Brazilian Central Bank) minutes were released early in trading highlighting that “the fiscal concerns create an upside risk for inflation expectations”, which could trigger an earlier than expected hiking cycle (quote from minutes, balance of italicized from Morgan Stanley Research).  This drove the BRL for the day, aided by a weaker DXY as well, and KC matched the pattern nearly tick for tick, with noted outperformance and then reversion to the trend at 10am and noon.  That noon spike to intraday highs would prove to be an inflection point, with the selling snowballing from there and KC departing from the FX trade.  Conspiracists amongst the market could be forgiven for their perception that an axed seller was driven to subdue the close, and coincidentally enough the roughly 20 minutes of continuous pressure from 12 onwards was alleviated immediately after the settlement window, with little volatility noted in the final hour.  Volumes on the day were similar to the past few sessions with interest declining from the early year fever pitch as heavier spread volumes made up for some of the lightest outright trading YTD.  Nonetheless structure was little changed, 5 points tighter in both HK and HH.  London gained $8 to close 1317 with HK tightening another tick to -8.