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By: StoneX Intelligence Brazil, StoneX Intelligence Brazil
• Arabica prices increased by 290 points (1.7%) in NY, closing at US₵ 172.80/lb.
• Robusta coffee prices dropped by USD 22/t in London (1.1%) to USD 2031/t.
• Cepea's Arabica indicator ended the week high by 1.7%, quoted at BRL 1,079.90/bag.
• Cepea's Robusta indicator dropped by 0.7%, ending the week at BRL 682.77/bag.
• Futures hit a 3-month high in New York. ▲
• Less optimistic estimates boost coffee prices. ▲
• As expectations for supply adjust, demand should regain importance in the medium term.
• World exports dropped by 8.5% in December. ▼
• USDBRL advances amid tightening by world central banks. ▼
• Positive US jobs, services data add to US inflation fears ▼
• Copom maintains the interest rate at 13.75% in Brazil, showing a firm tone in its statement. ▲
• Copom minutes, IPCA and data from Brazil's service and trade sectors are this week's highlights.
▼ Bearish factors ▲ Bullish factors
Over the past week, Arabica and Robusta futures prices have reached a 3-month high, with the most active Arabica contract closing Tuesday's session at (31) U$₵ 181.75/lb, while the equivalent Robusta contract closed on at USD 2107/t. A strong short-covering by funds and speculative agents supported the bullish movement. The latest COT/CFTC report showed that, on 01/24, funds still had a net short position of more than 40 thousand contracts; the CFTC did not release the COT report last Friday (03) due, according to an official note, to a cyber incident.
With the end of the short-covering movement, coffee futures underwent a strong correction amid profit-taking by agents. In addition, the USDBRL strengthening, especially after the release of labor market data in the US, contributed to pressure on the commodity complex in general. The dollar index advanced after the report showed the creation of 517 new jobs, well above agents' expectation, which was around 180 thousand. The dollar's rise against the Brazilian currency on Friday also weighed on coffee quotes.
Even with the losses at the end of the week, Arabica futures still ended the period with gains of 290 points (1.7%), closing Friday quoted at U$₵ 172.80/lb. On the other hand, the pullback of Robusta prices at the end of the week was able to drive its futures to a negative balance on the week, ending the period with losses of USD 22 (-1.07%), closing at USD 2031/t.
Weekly Intraday (most active contract) - Jan. 30 to Feb. 03
In Brazil, coffee prices in the domestic market followed the same moves seen in the international market, with Arabica prices ending the week on a high and Robusta prices posting declines. Cepea's Arabica indicator showed an increase of 1.7% in the week to BRL 1079.90/bag. Cepea's Robusta indicator ended the week with losses of 0,72%, closing at R$ 682,77/bag.
In the coming weeks, the coffee market is expected to react to the export data of the countries in January, to the GCA inventory data scheduled for Jan 15, and to the estimates for Brazilian production in 2023. In addition, the events in the macroeconomic field will also be on the agents' radar, especially the analyzes linked to the prospects for inflation and the growth of the world economy.
Stocks at US ports - GCA (milhões de sacas)
Impacted by monetary policy decisions abroad and in Brazil, the USDBRL ended last week by 0.6% at BRL 5.146. The dollar index also posted an increase of 1.0% to end at 102.8 points, boosted in the last two sessions of the week after positive activity data for the US currency.
Abroad, the decisions of the Federal Reserve in the United States, the European Central Bank (ECB) and the Bank of England (BoE) came within expectations of continued monetary tightening, but to a lesser extent. In the US, the Fed raised the rate to the range between 4.50% and 4.75% per annum, an increase of 25 basis points, after increases of 75 basis points in November and 50 points in December. The lower increase confirms the market's view that the country is going through a process of inflationary slowdown, which has allowed the US central bank to be softer in its adjustment. However, Fed Chairman Jerome Powell warned that many components of the economy are yet to show an inflationary slowdown, particularly the services sector.
On Friday, the January Labor Situation Report showed 517 thousand jobs created, well above expectations of 185 thousand. The services PMI also brought a positive surprise, rising from 49.2 points in December to 55.2 points, significantly above the 50-point threshold that separates a contraction and expansion condition. If, on the one hand, the recovery of the economy decreases the fear of a recession, on the other, it shows that the heated demand increases the difficulties of the Monetary Authority in regaining stability. In practice, the results raise the perception that the Fed may have to seek more increases or keep the rate high for longer than previously anticipated, which attracts greater foreign exchange flow to the US currency and puts pressure on risky assets such as emerging currencies or commodities.
In Brazil, the Monetary Policy Committee (Copom) of the Central Bank (BC) maintained the basic interest rate (Selic) at 13.75%, presenting a firm tone, signaling the intention to postpone rate cuts to ensure the disinflationary process in the country and stating that it remains alert to the risks and uncertainties concerning the fiscal policy of the new government. This Tuesday, the minutes of last week's meeting should have new information regarding the debate among committee members to postpone the rate cuts. In addition to the minutes, this week's agenda highlights the National Broad Consumer Price Index (IPCA) for January, which IBGE will publish on Thursday (9). Furthermore, the Monthly Survey of Trade and the Monthly Survey of Services for December, which will be released on Thursday and Friday, respectively, will help in reading about the performance of the Brazilian economy at the end of 2022 and in forming expectations for the GDP result in the last quarter and the year.
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