Commodities & Precious Metals Weekly Report: Feb 25
Posted:
Key points
Energy prices increased last week. WTI and Brent crude oil prices increased 1.5% and 3.0% percent, respectively. Gasoline prices increased 2.1%, gasoil prices rose 2.4% and heating oil gained 1.7%. Natural gas prices gained 2.0%.- Grain prices, except for soybean prices, were higher with wheat prices increasing the most. Chicago and Kansas wheat prices rose 6.9% and 6.1%, respectively. Corn prices increased 0.5%. Soybean prices fell 1.2%.
- Precious metal prices were lower. April gold futures prices decreased 0.6% and March silver gold futures prices edged lower 0.1%. Platinum prices fell 3.3%.
- Base metal prices were mainly higher. Aluminum, zinc and nickel prices rose 3.0%, 1.4% and 1.3%, respectively. Copper prices decreased 0.9%.
- The Bloomberg Commodity Index rose 0.7%. Gains in the energy, grains and base metals sectors were partially offset by losses in the livestock, precious metals and softs sectors.
- Continued inflows into commodity ETPs mainly from broad commodity ($549m), gold ($212m) and agriculture ($109m) ETPs. Silver ETPs saw outflows of $123 million.
Commentary
Another tumultuous week with U.S. stock markets falling precipitously the first two days of the holiday-shortened week and then posting strong gains the last two days. Thursday was a particularly volatile day with the S&P 500 Index reversing a 2.6% intraday loss to close 1.5% higher. Russia recognizing and deploying troops to separatist strongholds in Ukraine and then actually invading Ukraine Thursday drove markets lower through mid-day Thursday, dragging the S&P 500 into correction territory. Thursday’s end-of-day recovery and Friday’s move higher was jump started by additional but less-harsh-than-expected U.S., UK and European sanctions on Russia and reports Russia was willing to enter into negotiations with Ukraine but also with investor sentiment moving from risk-off to risk-on with market participants believing markets were oversold. Friday’s greater-than-expected PCE price index release seemingly had little effect on stock or bond markets. The 10-year U.S. Treasury rate moved off its Tuesday’s lows of 1.87%, increasing 13bps through Wednesday and then dropping slightly over Thursday and Friday to finish the week 4bps higher. 10-year real yields fell 8bps over the week meaning 10-year inflation expectations increased 12bps to 2.56%. At week’s end, the S&P 500 increased 0.8% to 4,384.62, the Nasdaq Composite Index rose 1.1% to 13,694.62, the Dow Jones Industrial Average edged 0.1% lower to 34,058.55, the 10-year U.S. Treasury rate increased 4bp to 1.97% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.6%.
Unnerved by Russia’s move to recognize and deploy troops into separatist-held strongholds in Ukraine Tuesday, WTI crude oil prices jumped 2% higher. Thursday’s invasion of Ukraine had little effect on the WTI (May futures contract) price but moved the Brent crude oil (May futures contract) price 1.5% higher. Oil prices moved lower Friday as U.S. and European sanctions did not include Russia oil exports and possibly due to reports of Iran negotiations progress. Reports of efforts to prohibit Russia from SWIFT access did not seem to affect prices.
Gold prices, too, were volatile, particularly Thursday, with gold prices rallying 3% intraday before settling less than 1% higher. Strong haven investment demand, resulting from Russia’s troop deployment into separatist-held strongholds in Ukraine and its actual invasion of Ukraine on Thursday, moved gold prices 1.5% higher through Thursday. Fear of a growing conflict potentially involving NATO, pushed prices sharply high intraday Thursday, only to see most of those gains reversed as fears of a widespread conflict diminished and on less-harsh-than-expected sanctions imposed by the U.S., UK and EU. April gold futures contract prices dropped 2% Friday as haven demand fell, possible due to reports Russia had offered to enter into negotiations with Ukraine.
Russia’s invasion of Ukraine increased fears of sanctions that would restrict Russian nickel and aluminum exports driving prices significantly higher through Thursday. Aluminum prices posted a record high Thursday and nickel prices reached decade-high levels. Nickel and aluminum prices fell Friday, reacting to less-harsh-than-feared sanctions and reports Russia was willing to negotiate with Ukraine. Copper prices, lower on the week, moved higher Friday supported by Chinese stimulus measures.
A wild week for grain prices but especially for wheat prices. Russia’s invasion of Ukraine following the recognition of and deployment of troops into separatist held strongholds in Ukraine sent wheat prices over 16% higher through Thursday. Corn prices, also affected by the Russia-Ukraine conflict moved almost 6% higher through Thursday. Less-harsh-than-feared sanctions on Russia imposed by the U.S., UK and the EU and reports of Russia willingness to negotiate with Ukraine, pushed grain prices sharply lower with wheat prices dropping 8% and corn and soybean prices falling between 4% and 5% on Friday.
Coming up this week
Decent data week with Fed Chair Powell testifying Wednesday and Thursday, PMI and ISM manufacturing and service indexes Tuesday and Thursday and the Employment Report on Friday.- International Trade in Goods and Chicago PMI Monday.
- PMI and ISM Manufacturing Indexes and Construction Spending on Tuesday.
- Fed Chair Powell Testimony on Wednesday.
- Jobless Claims, Productivity and Costs, Fed Chair Powell Testimony, Factory Orders and ISM Services Index on Thursday.
- Employment Report on Friday.
- EIA Petroleum Status Report Wednesday and Baker-Hughes Rig Count on Friday.
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.
