GLOBAL MACRO UPDATE

The global markets are moving in between conflicting forces. On the one hand Q1 US GDP printed a very low 0.2%, yet the FOMC is expecting growth to bounce back and has left the door open for hikes later this year. The market has taken a lot of the hikes out that had previously been priced in and this has had flow on effects to various asset markets. Rates across the globe have moved higher. Equities have moved lower, which would generally be USD supportive, but instead the big dollar has sold off.

We are looking at these events as being more of a position wash out than a new change of trend. We have used the rally in AUD/USD over 80c to sell into targeting lower levels. Iron ore has been a positive AUD driver recently, with a 25% bounce (albeit off a very low base), but that seems to have run out of steam. There is also some talk of a ratings downgrade to Australia following the May budget. This isn’t our core view but we are watching closely.

Overnight the Brazilian central bank raised rates another 50 points to 13.25%. The recent rally in the Reais appears over now (12% almost straight line), and we expect the sell off in BRL to continue now.

SUGAR UPDATE

Sugar has been in a volatile range, testing 12.50, then 13.50 and ultimate rejecting both levels. The May/July spread has dominated trade over the last few sessions, with the spreads inverting. We suspect this is more to do with a “technical” short squeeze rather than a genuine shortage of sugar. We see trade flow surpluses for the next few quarters, which should require the market to stay in carry to help “kick the can down the road”. We expect to get a cleaner read of the market when the May contract rolls off. If we are correct with USD/BRL finding a bottom we suspect the market will remain under pressure, although with the next expiry months away it’s hard to see a pressing reason for either buyers or sellers to be pushed to market.

The Thai crop has come in larger than last year (in spite of all the drought talk) and the Indian crop seems set to push through 28 mmt, way above the top end of all market es mates at the beginning of the crop. 600+ mmt numbers are also being pushed around for the Brazil crop, but the mix will be critical as well as the chance of a wet season impacting the crush and ATR. We continue to monitor and will keep you updated. Please contact us with any questions.