KC rallied 150 points to settle at 99.30, the second best performer on a percentage basis in the BCOM, largely courtesy to a friendly move in the Brazilian currency. The BRL rallied to trade above 4.00 $/R for the first time since August 21st on optimism amongst investors that conservative candidate Jair Bolsonaro will win the presidential election, while leftist candidate Fernando Haddad expressed interest in selecting a market friendlier finance minister. An intraday overlay chart shows underscores the correlated rhythm of trading in a market that has been struggling to find other inspirational directional cues. Open interest increased 2,519 lots on yesterday’s +190 point range, however the implication is the increase was mainly due to new spread positions as 16,307 traded on a day with total volume of 33,610 lots. A range bound Robusta accreted $5 to settle at 1516 basis the November contract.
KC spent all but the final 12 minutes of trading in a 100.10-98.65 range before faltering to a new low of 97.85 and settling at 98.50, down 140 points. A record short fund position of 113,412 lots exceeded the end of August record by net 7,307 lots. The record net commercial position at 55,414 lots was 2,387 lots longer than August’s pinnacle. While the numbers alone are startling at face value, with each new record, and there have been 7 since July, the shock factor has gone from “holy cow batman” to “wow..please pass the salt”. Volume was half that of Friday’s while the BRL traded an inside session at the upper end of its 4 week trading band. The last day of trading in Sep London saw 1252 notices issued while total tenders for the period stood at 3,293 lots. Robusta managed to close just off the highs with a $24 gain while forming a double top with Friday’s 1515 high.
Even by the standards we have become accustomed to, coffee (96.70, +.85) posted a session dominated by the BRL. The market languished just shy below 96c for the bulk of the morning as outright volume turned over ever so slowly. Interestingly crude oil was well matched with KC as well (see chart of the day), which suggests that the BRL may have been driven by the key commodity price to a greater extent than the improved poll position of Haddad. The timing of this correlation, assuming it is something more than coincidence, is notable given the authorship of a Bloomberg opinion piece arguing that the BRL was more likely to be driven by commodity values than politics. It bears watching whether this is more than a one off. If crude can turn the BRL, and the BRL in sequence coffee, the long suffering bulls may have a newly minted hope to hang on to. Robusta closed down $5 at 1487 in the active Nov contract, yet Sept rose $18 in notice period. The final trade / delivery date stands at this coming Monday, with OI still above 2800 lots.
Coffee settled up 165 points at 102.10, running into resistance around the mid Bollinger band. The DXY was the macro trade du jour, with the currency under pressure as optimism grew around potential US – China trade talks. Options were slow, yet structure remains active with another 6300 ZH trading inside yesterday’s range. Price seems comfortable at these prices with narrowing moving averages, even if traders – particularly those in origin – are decidedly not. London was a pure sympathy trade amidst dreadful human involvement. Even modest orders would send bids / offers into a disappearing act. The active Nov contract gained $38 to 1516, keeping the arb steady at 33.33.
Coffee posted a second higher high, higher low, all the while closing 160 points lower at 102.20. All pertinent moving averages remain above current prices. The day was mostly quiet, with the European hours being marked by a choppy slide lower, an 8:30 selloff, and a 9:30 to 10:30 inverse V and a dreadfully small range for the balance of the day. One could argue that the Brl was a dominant feature – when can’t one? – yet the 8:30 drubbing was a unique event, and the end of day weakness was in opposition to the currency influence. Beyond that, there was very little to report, with commercial participants woefully non-participatory from our perspective. Robusta closed down $9 at 1492 as 58 lots were tendered for a month to date total of 231.
Arabica, 101.45, -35, began the day under modest pressure following yesterday’s BRL selloff as ex-President Lula attempts to move his unsuccessful appeal to run from his prison cell from the domestic courts to the UN. EM contagion fears were also primary in the financial media, if greeted with a degree of dubiousness by coffee traders. Pressure would mount on coffee nonetheless, ultimately taking prices to fresh 12 year lows at 98.65 in the active / KC2 contract. 1st of month system selling along with renewed BRL weakness sent prices lower on three discrete clips of sizeable selling, the largest being two 800+ lot clips around 9:30am EDT. Roaster buying was noted – as expected – into the weakness, as was some discretionary trade house prop activity. The BRL would ultimately reverse course under uncertain circumstances, and KC followed as is custom. Robusta closed at 1475, -14, with better engagement than late. London has now posted 5 days of lower lows and lower highs, offering fresh opportunity to roasters swimming in such.
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