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Commoditized Wisdom: Metals & Markets Update (December 4, 2020)

Commoditized Wisdom: Metals & Markets Update (December 4, 2020)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (December 4, 2020)

Key points

  • Energy prices, except for natural gas prices, all moved higher last week. Brent crude oil prices increased almost 2% and heating oil prices were up about 1.5%. Gasoline prices were almost unchanged.  Natural gas prices declined sharply, falling almost 9.5%
  • Grain prices were sharply lower last week with wheat prices falling 4% - 5% and corn and soybean prices decreasing close to 3%.
  • Base metal prices were mixed last week. Copper and aluminum prices moved higher, gaining 3% and 2%, respectively.  Zinc prices fell 1.5% and nickel prices lost about ½ percent.
  • Precious metals were all higher last week with platinum prices increasing the most. Gold prices rose about 3.5%, silver prices about 7% and platinum prices almost 12%.
  • The Bloomberg Commodity broke its string of weekly increases, falling 0.7% last week.  The energy, grain and soft sectors were responsible for the index’s decline with the precious and base metals sectors offsetting some of those negative performances.
  • Total assets in commodity ETPs decreased for a third consecutive week, falling $1.1 billion.  Gold and crude oil ETP outflows were partially offset by silver, broad commodity and energy (ex-crude oil) ETP inflows.

 

Commentary

Following double-digit November gains, continued “risk-on” sentiment pushed stock prices higher while weakening the U.S. dollar and increasing 10-year U.S. Treasury rates. UK approval of Pfizer’s Covid-19 vaccine, expectations of U.S. approval later this month, strong U.S. and China manufacturing data and revived congressional stimulus package negotiations all helped to move U.S. stock markets higher.  At week’s end the S&P 500 Index increased 1.7% to 3,699.12, the Nasdaq Composite Index increased 2.1% to 12,464.23, the 10-year U.S. Treasury rates jumped 12bps to 97bps and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened significantly, falling 1.2%.

Down nearly 2% through Tuesday after OPEC+ delayed production talks till Thursday, WTI crude oil prices rallied nearly 4% the remainder of the week following OPEC+ agreeing to a smaller production increase next year than originally planned, UK approval of Pfizer’s Covid-19 vaccine and revived congressional stimulus package negotiations.  A larger-than-expected drop in U.S. oil inventories and a weaker U.S. dollar also supported oil prices.  

Rebounding off last week’s 5-month low, gold prices rose over 2% on Tuesday buoyed by a weakening U.S. dollar, Fed Chairman Jerome Powell’s comments that the state of the economy was extraordinarily uncertain and on increased hopes and expectations of a congressional stimulus package.  Silver and platinum prices followed gold and base metal prices higher.

Copper prices rose to 7-year highs Tuesday supported by strong manufacturing data in the U.S. and China.  Increased expectations of a congressional stimulus package and a weaker U.S. dollar also supported base metal prices.  

Soybean prices moved lower last week on weak export numbers, forecasts of rain in South America and, as a result, on concerns of a much larger-than-forecast soybean crop in Brazil.  Wheat prices fell on increased concerns of larger-than-expected wheat crops in Australia, weak U.S. wheat exports and USDA upgrades to crop conditions.   Corn prices moved lower with wheat and soybean prices on no real news.

 

Coming up this week    

  • Very light data-week highlighted by CPI and PPI releases later in the week.
  • Productivity and Costs on Tuesday.
  • CPI, Jobless Claims and the Fed Balance Sheet on Thursday.
  • PPI and Consumer Sentiment on Friday.
  • 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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