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Commoditized Wisdom: Metals & Markets Update (December 31, 2020)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (December 31, 2020)

Key points

  • Most energy prices finished the week higher. Gasoil and heating oil prices were the exception, falling about ½ percent.    Gasoline prices increased 2.5% and natural gas and Brent crude oil prices increased about 1%.  WTI crude oil prices rose ½ percent.
  • Grain prices were, again, all higher last week. Corn prices surged 7% and soybean prices rose over 2.5%.  Wheat prices increased between 2% and 2.5%.
  • Base metal prices fell again last week. Zinc prices fell the most, decreasing a little over 3%. Aluminum and nickel prices fell about 2.5% and copper prices decreased about 1%..  
  • Precious metal prices were all higher last week. Platinum prices gained over 5%, silver prices gained 2% and gold prices rose about 1%.
  • The Bloomberg Commodity Index finished the week higher, increasing 1.3%. The grains sector was primarily responsible for the increase with the energy, precious metals and softs sectors also contributing. The base metals sector was the only negative performing sector.
  • Total assets in commodity ETPs increased $435 million last week, predominately from inflows into gold and silver ETPs.  Crude oil ETP outflows were the only outflows last week.

Commentary

U.S. stock market moved higher last week with the S&P 500 closing at a record high and up over 16% on the year.   The Nasdaq Composite Index closed just short of its record high finishing the year 43% higher. Mixed economic news – inlcuding lower-than-expected weekly jobless claims and disappointing pending home sales numbers - was offset by President Trump’s signing of the $900 billion stimulus package though congressional resistance to increased individual stimulus checks may have limited stock market gains.   At week’s end the S&P 500 Index increased 1.4% to 3,756.07, the Nasdaq Composite Index increased 0.7% to 12,888.28, the 10-year U.S. Treasury rate fell 1bp to 92bps and the dollar  (as measured by the ICE U.S. Dollar index - DXY) weakened 0.4%.

Dropping almost a percent Monday on demand concerns, WTI crude oil prices moved higher the remainder of the week buoyed by much larger-than-expected U.S. inventory drawdowns and by President Trump’s signing of the $900 billion stimulus package.  Congressional resistance to increased individual stimulus checks, coronavirus-related concerns and concerns regarding OPEC+ increasing production at the start of the new year and perhaps in February as well limited oil price gains.     Natural gas prices dropped more than 6% on Monday on forecasts of warmer-than-expected weather but rallied back the remainder of the week as forecasts flipped and on lower-than-expected production.   For the year, WTI crude oil prices finished well off their lows set earlier in the year but still down a little more than 20%.

President Trump’s signing of the $900 billion stimulus package and a weaker U.S. dollar helped move precious metal prices higher last week.    Increased “risk-on” investor sentiment as evidenced by record-high levels of U.S. stock markets helped limit gold price gains.  Gold prices finished the year up slightly more than 24% and platinum prices recorded a gain on the year of almost 11%.

Despite a weaker U.S. dollar and President Trump’s approval of the $900 billion stimulus package, base metal prices moved lower last week.  Coronavirus-related demand concerns stemming from increased restrictions and lockdowns and weaker-than-expected  Chinese manufacturing numbers helped move prices lower.  Aluminum prices also suffered from increasing supply, with global production levels strongly increasing.

Down over 2% Monday on higher-than-expected harvest yields and better-than-expected weather, wheat prices rallied through the end of the week supported by expectations of significantly lower Russian exports.  Soybean and corn prices moved higher throughout the week helped by continued dry-weather concerns in South America and strong export numbers.

 

Coming up this week    

  • Busy data-week with most data on Wednesday and Thursday. ISM and PMI manufacturing and services indexes during the week, FOMC minutes on Wednesday and the Employment Situation Report on Friday.   
  • PMI Mfg Index and Construction Spending on Monday.
  • ISM Manufacturing Index on Tuesday.
  • ADP Employent Report, Factory Orders and FOMC minutes on Wednesday.
  • International Trade in Goods and Services, Jobless claims, ISM Services Index and the Fed Balance Sheet on Thursday.
  • EIA petroleum status report on Wednesday and Baker-Hughes rig count on Friday.

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.

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