Arabica fell through broad levels of support after failing to uncover motivated buying, settling 99.10, -340. This was the first time the active contract settled below $1 since the KCH contract did so during the index roll on February 7th. A few factors were at play with a weakening BRL, continued shy commercial buy side participation, an apparent increase in systematic selling, and some questionable reports around Brazilian consumption. This overcame a particularly weak DXY day and modest increase in risk appetite across assets. Sentiment has fallen to new lows anecdotally on the back of generalized fear of Brazil and CTA selling along with uncertain demand leading to the accompanying sense of inevitability of lower prices. Weakness was particularly notable in structure as spreads widened down the board, 10 points in the prompt NU and 75 months across N0/N1. It appears interest in the continued disappearance of certified stock has waned after a 8131 bag decrease noted yesterday and another 3952 today. London was unable to hold off the barrage even with an uptick of long side interest, closing 1177, -33. Spreads there were steady at unchanged in the front 2 periods, and $1 tighter carrying into 2021.
Coffee closed the day 105.10, +1.50 on the back of a macro influenced bid and ending a 4 day run of losses. The BRL gained ground from the start with political quiet after the video that had been the source of controversy regarding President Bolsonaro was released and proved not to be damaging. A general improvement in EM sentiment along with continued short covering was enough to overcome a 25 year low in foreign investment flows, deflation, and Brazil’s ascent to second place for the dubious distinction of most confirmed covid-19 cases (trailing the US). Risk was on down the board with economies kicking back into gear as developed nations are broadly moving into the terminal phase of virus growth for the time being and businesses reopen. The dollar weakened and BCOM components gained value in near-lockstep; only gold, silver and gasoil were down on the day at the time of KC’s close. Spreads suggested it wasn’t only macro however as NU posted a higher high, higher low, positive close for the first time since May 14th and N/N saw active volume trade as it lost a tick, settling 5 points below the actual low print for the day. London closed higher as well, gaining $12 to 1219. Structure was weaker there however, widening $2 and $1 respectively in the front 2 switches.
Arabica fell 90 points to 104.75, the lowest settlement for the active contract since March 17th. Pressure arrived as risk came off on the back of another increase in the governmental war of words over the coronavirus, with the DXY rising and commodities broadly slipping lower. KC and the BCOM were down nearly the same % and equities slipped as well. The BRL continued to gain ground, another 2% at the time of KC’s close, but was a nonfactor from 10am onwards. In comments yesterday BCB President Roberto Campos Neto suggested FX intervention was necessary last week as the BRL selloff brought it out of line with peer FX and fundamentals – reflecting on prior statements to regarding central bank perspective earlier in the year – which has driven recent short covering in the currency. Nonetheless with the BRL ignored and trading otherwise dull steady selling was noted in both the flat price and spreads; N/U weakened 15 points and N/N half a cent to -7.70 (also the lowest level since March 17th). Total volume was the largest since April 24th, spreads even longer (April 17th), and implied outrights were the largest since the 24th as well. The settle / VWAP spread was a fairly modest 44 points as most of the damage was done in real-time trading. London appears to be the beneficiary or arb buying, either explicit or implicit, standing strong again (relative to KC) at 1189 +3. Spreads in London weakened as well, albeit only modestly on a net basis, and were a point of as much conversation as traders could muster on the day. Robusta certs drew another 21 lots on the day.
Arabica fell 140 points, closing 105.65. Opening Brazil related pressure set the market off on the wrong foot and little fight was offered during early the European hours. A long slog higher kicked off about 90 minutes after the commencement of trading as light roaster buying found an absence of fresh offers. With the Dollar and commodity wind in the sales futures continued to gain steam, stepping modestly into positive territory (+60 points) a bit after the 8am traditional NY opening as the BRL found its footing following yesterday’s late selloff. However, 15 minutes later axed selling sent KC spiraling back towards its low, effectively ending the day. While prices recovered for a couple hours it wasn’t to be and the lows were traded going into settlement. With the FX and proxy markets offering upside motivation and thin volume the weakness was a bit odd, but again apathy seems to be the consensus sentiment amongst traders. Total volumes by all measures remain poor, and today only modestly improved upon yesterday’s woeful effort. With prices trapped, uncertainty related to covid discouraging risk taking, and no fresh news the trading is best considered consolidation. The VWAP for each of the past 7 trading days has been between 106.02 and 107.98 with total exchange volume peaking at 33,397 lots for any single day. Only once over that period has outright trading in the 2 most active contracts cracked 10k. Robusta fared better, closing $2 in the black at 1186. May open interest is finally cleaning up with 906 lots issued ahead of Friday’s last notice day.
Arabica settled down .70 points at 108.40 in a rather lifeless session. Early trade saw steady but feeble gains off the opening while also creating a .30 point open gap, basis KCc2 with KCK20 being off the board. The GAP had a limited lifespan and was filled shortly after the BRL opened and fell to the lows of the day along with KC. A brief correction was made as the FX made a positive recovery but at the end of the day it was close to a wash. Spreads continued to weaken with KC N/U losing another -.10 points and N/N another -.15. To put things in perspective we have been trading in a 4.20 range for the past 5 days and paltry 9.35 the past 15+. Robusta proved to be the more exciting of the two or a least volume wise and the complete opposite of yesterday, settling +$2 at 1196.
Certs increased by 2477 (1,793,953) with pendings down to 1250.
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