SUGAR MARKET OVERVIEW:

Perhaps due to London Sugar week, volumes were light. The market got long positioning itself for bullish UNICA production numbers. In a typical case of buy the rumour sell the fact, the market got the numbers it was looking for and promptly sold off 70 points.

The mood from London was somewhat mixed. There is acknowledgement of the vast supply of stocks sitting both at origin and destination, yet there is a belief that the Thai drought, Brazil miller stress leading to lack of husbandry and mill closures and potential change of government and changes to the ethanol mandate and gas prices will lead to the long awaited deficit for 15/6.

In the meantime, rallies will be capped by supply and the market will have to stay in positive carry for at least the first half of 2015. Barring a supply shock, it’s hard to see the catalyst that will break us out of the current range.

CURRENCY MARKET OVERVIEW

The USD drove higher following the very strong payrolls result, and spent the whole of last week consolidating this move. DXY has moved up from 79 to 87 (10%) without any meaningful retracement. Given the lack of pullback last week, the trend appears well and truly intact, and the correction appears to be much more in time than in price. US equities are currently reporting 3Q earnings and the strong currency has taken its toll. Ironically, a weaker equity market (coupled with an increase in volatility VIX is currently 24) can lead to a further bout of risk aversion, creating a bid for USD at the expense of safe haven currencies like AUD.

The long held 92–95 range in AUD has clearly broken and not likely to be retested in the foreseeable future. We are now looking to sell into rallies towards 88–89 for a move through 85 to the low 80s.