Morgan Stanley Report 02-03-16

A commodity friendly day included coffee in the performance, opening with a modicum of buying that would keep the market in an extremely tight band for most of the early hours. A generalized 15 minute selloff that coincided with similar action in cocoa and to a lesser extent sugar took the market to its low around 8am EST, but ultimately proved to be a short term buying opportunity. Volume overall was notable as the roll remains on target ahead of FND on the 19 th .  Weather has been trending in conversation, something that is likely to gain momentum following the FNC’s late day estimate of 1mio bags lost due to drought. Certified stocks drew 13k bags, taking the outright number to 1.59mio, continuing a trend that has caught the attention of the discretionary traders in the market. Spreads continue to tighten, with KC H/K reaching a peak of -1.85 intraday. The BRL rallied back inside 4.00 as January inflows reached 1.5bln per a Brazilian Central Bank report this morning, while embattled Senator Eduardo Cunha stated that formal independence is likely to be granted to the BCB. Meanwhile the BCB reportedly is seeking a 4.5% inflation rate before reducing interest rates, while warning of the potential for increased rates should inflation rise. A suddenly interesting environment has the makings of a two sided trade, however more work needsto be done before the cautiously friendly react in more than a tepid manner.