Commodities & Precious Metals Weekly Report: Feb 24
Posted:
Key points
Energy prices were mixed last week. WTI and Brent crude oil prices were practically unchanged. Gasoil and heating oil increased close to 1.5% while gasoline prices decreased 1.5%. Natural gas prices (May futures contract) climbed 8%.- Grain prices were lower. Wheat prices fell 7%, corn prices dropped 4% and soybean prices decreased less than ¼ percent.
- Precious metal prices were lower, too. Spot gold and platinum prices decreased 1%, spot silver prices fell 4% and palladium prices dropped 6%.
- Base metal prices were mostly lower. Copper and zinc prices were down 3%, aluminum prices decreased 2% and nickel prices lost 5%. Lead prices were edged slightly higher, gaining ¼ percent.
- The Bloomberg Commodity Index fell 0.8%. Losses in metals and grains were partially offset by gains in energy.
- Close to $300 million outflows from commodity ETPs last week primarily from gold ETPs. Broad commodity, silver and crude oil ETPs had smaller outflows which were mostly offset by energy (ex-crude oil) inflows.
Commentary
Stock markets started the week on a sour note, with all 3 major indexes falling 2% or more Tuesday (the first trading day of a holiday-shortened week). Tuesday’s dour sentiment was a continuation of the previous week’s but with investors ratcheting up concerns of Fed monetary policy moving rates higher for longer following stronger-than-expected business activity as measured by the PMI Composite Flash release. Wednesday’s release of FOMC minutes revealed no new substantive insights, moving stock index levels only slightly. Thursday saw all three indexes move higher, benefiting from a surging NVDA stock price (up 14%) and despite falling initial jobless claims and increased market expectations of a 50bp rate hike in March. Friday’s higher-than-expected PCE Price Index release combined with a much greater-than-expected increase in consumer spending added to market expectations of more aggressive Fed monetary policy causing all 3 indexes to drop at least 1%. Reflecting similar sentiment as the stock market, the 10-year Treasury rate rose and the U.S. dollar strengthened. The 13bp increase in 10-year Treasury rates came almost entirely from rising real rates (up 12bps). For the week, the S&P 500 Index decreased 2.7% to 3,970.04, the Nasdaq Composite Index fell 3.3% to 11,394.94, the Dow Jones Industrial Average dropped 3.0% to 32,817.05, the 10-year U.S. Treasury rate rose 13bp to 3.95% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 1.3%.
WTI Crude oil prices ended the week slightly lower, belying intraweek volatility fostered by competing demand and supply concerns. Sharply lower Tuesday, prices reacted to growing concerns of Fed-induced demand destruction in the face of a seemingly resilient job market and economy. FOMC minutes, released Wednesday, offered no substantive information leaving markets waiting for Friday’s PCE Price Index release. Nonetheless, despite falling initial jobless claims Thursday and a higher-than-expected PCE Price Index release Friday, crude oil prices rose almost 2% Thursday and then another 1% Friday on reports Russia planned to significantly increase production cutbacks in March. Adding to upward price pressures were expectations of increased Chinese demand.
Strong economic data combined with seemingly stalled inflation levels increased expectations of renewed aggressive Fed monetary policy with rates moving higher and staying there longer, pushing gold prices lower the week. Better-than-expected PMI Composite releases Tuesday, FOMC minutes without dovish comments and a higher-than-expected PCE Price Index release Friday combined to pressure gold prices lower. Silver and platinum prices moved lower as well with silver prices falling more sharply (inline with base metal price declines). Palladium prices dropped over 6% moving lower with gold and base metal prices but also as a result of growing EV demand shrinking the auto industry consumption.
Base metal prices fell all but Tuesday, pushed lower by concerns of diminishing demand with increasing expectations of slower growth due to growing concerns of renewed central bank inflation vigilance despite hopes of revived Chinese demand. Prices rose sharply Tuesday primarily due to investor expectations of increased Chinese demand.
Grain prices finished the week lower with wheat prices faring the worst. Both Chicago and Kansas City wheat prices suffered from continued Russian price undercutting, weak exports and reports of significant fund selling. Corn prices, reacting to a bearish USDA Outlook report forecasting higher yields, planted acres and production as well as fund selling, ended the week down 4%. Soybean prices, only marginally lower on the week, were pressured lower by a slightly bearish USDA Outlook report, dryer Brazil weather and lower bean oil prices. Corn prices
Coming up this week
Home sales and price data, PMI and ISM manufacturing and services indexes and consumer confidence headline this week’s data releases.
Who is Jeff Klearman in our research team? Jeff has over 20 years experience working as a trader, structurer, marketer and researcher. Most recently, Jeff was the Chief Investment Officer for Rich Investment Services, a company which created, listed and managed ETFs. Prior to Rich Investment Services, Jeff headed the New York Commodities Structuring desk at Deutsche Bank AG. From 2004 to 2007, he headed the marketing and structuring effort for rates based structured products at BNP Paribas in New York. He worked at AIG Financial Products from 1994 to 2004 trading rates-based volatility products as well as marketing and structuring. Jeff received his MBA in Finance from NYU Stern School of Business and his Bachelors of Science in Chemical Engineering from Purdue University.
