Evening Coffee by Societe Generale

Bank of Japan disappointed the markets deciding not to change its monetary policy, probably waiting for the outcome of the Japanese fiscal stimulus plan. US 2Q GDP came out lower than expected, 1.2% versus forecasts of 2.5%, and 1Q16 figures were revised to 0.8% from 1.1% - negative numbers that were perceived as good news for the stock markets (the S&P500 made a new high) on renewed bets of further monetary easing and eventually a non-hike by the FED during 2016. As a result the Dollar Index erased all the positive performance of the month of July helping commodity indices to recover with the CRB having a key-reversal of the recent downtrend.
    The Brazilian Real enjoyed a nice rally backed by the weakness of the greenback (in general) and more benevolent projections of the IMF for Brazil as it sees a slightly less severe recession this year with a return of positive growth in 2017.
    Coffee in New York was the second best performance commodity of the day, triggering stops above yesterday’s high and rallying further during the settlement period. Spread activity picked up with the U6/Z6 spreads widening to US$ -3.30 cents/lb. Robusta September16 contract had a very positive move being now only 18 dollars/ton away from its high.
     September New York (KCEU6) settled US$ 4.05 cents up. Volume was average at 38,278 lots including an estimated 367 EFP's, 415 EFS's, 812 TAS and 11,029 spreads. 5,402 calls and 3,074 puts also traded. The KCEU6-LRCU6 arbitrage: 60.98cts +2.56cts Ratio: 1.7274+0.0171. €: 1.1183+0.96%. BRL: 3.2352/$+1.75%. CRB: +1.00%. Crude oil: +0.85%. Open interest: 184,742+502.
     September London (LRCU6) settled up 35 dollars today. Volume was average at an estimated 13,667 lots including 3,699 spreads, 475 EFP's and 20 EFS's. 1,830 calls and 1,650 puts also traded. Open interest: 104,780+496.
     ICO sees World coffee exports drop of 11% in June to 9.03 mln bags, with cumulative shipments in 12-months ending in June at 112.85m bags, from 113.49m bags on the previous period.
    CONAB sold 100% of the coffee offered on today’s auction in Brazil at the average price of R$ 448.88 per bag. The government has authorized the auction of 50% of its total inventory to ease the demand of local merchants/roasters. Auctions will take place every other week.
    Commitments of Traders reported non-commercials sold a net 1,351 lots during the week from July 20th to the 26th, holding a net long of 35,137 contracts – during the same period NY lost US$ 4.95 cts/lb. Commercials bought 1,561 lots and sold 1,204 lots, being net short 73,230 lots.
    The next upside objective for the “C” is at 148.00, followed by 149.75, 151.30, 152.80 and 154.80. Support levels are at 144.30, 143.85, 142.25 and 140.80.
    Have a nice weekend,
    Rodrigo Costa