Morgan Stanley Coffee Report - Oct 22, 2020

Coffee traded a bit of a wild day, closing 255 points higher at 106.70.  Futures were quiet early, were predictably sold at 8am, and it seemed like the forces of trend, dollar, and negative sentiment on stimulus would doom KC.  However, the BRL has renewed itself as an increasingly important input to daily trading as the 10 day correlation has risen to -.60, the strongest in nearly two months, and as the currency began to improve so did coffee.  The initial upticks were predictably sold, yet roaster bids around the lows helped hold prices before 1000+ lots of buying sent futures flying.  Z/H (-2.70, +.15) followed and the narrative began to swing – traders quickly highlighted improved spot demand from industry, concerns about Brazil deliveries, the potential of the open gap holding, etc – and selling dried up in the process.  The 100dma crossed the 200 dma as well basis KC2, which leaves the 50 above the 100 above the 200, a pattern that had great success last November.  The reversal also put prices on the cusp of reentering the 107 / 113 range that held from Sept 21 through this past Friday, Oct 16, and was the first positive settle since Oct 13th.  Technicals are still broadly negative, and the downtrend channel remains in place, but for at least tonight there is some optimism for the bulls.  Certs should advance that feeling of good will, as gradings again posted a negative pass rate with 4160 bags failing and 3845 passing (all Brazil).  285 Burundis were drawn from the stock, for a net build of 3560.  London also performed well, bouncing back over the 1300 line for a 1307 close, +28.  While XF continues to weaken with 2 trading days left before notices go out, -31, -2, FH caught a bid settling -6, +4.