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Commoditized Wisdom: Metals & Markets Update (February 12, 2021)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (February 12, 2021)

Key points

  • Energy prices moved higher again last week. Brent and crude oil prices were up 4.7% and gasoline and heating oil prices rose 3.5%   Natural Gas prices increased a little over 1%.
  • Wheat and corn prices fell last week while soybean prices rose. Wheat prices were down between ¾ and 1 ¼ percent and corn prices fell 2%.   Soybean prices increased just under ½ percent.
  • Base metal prices were all higher again last week. Zinc prices increased the most, gaining over 6%, followed by copper prices, up 4.5%.   Aluminum prices rose 3.5% and nickel prices rose 3%.
  • Precious metal prices were all higher as well last week with Platinum prices surging 9%. Silver prices were up just over 1% and gold prices increased about ¾ percent.
  • The Bloomberg Commodity increased almost 2% last week with the energy and base metals sectors powering the move higher. The grains sector was the only sector with negative performance last week.
  • $1 billion of outflows from commodity ETPs last week. $1.5 billion outflows from gold and silver ETPs were partially offset by almost $400 million broad commodity ETP inflows and $100 million agriculture ETP inflows.

Commentary

U.S. stock markets moved higher once again last week with both the S&P 500 and Nasdaq Composite Indexes again reaching record highs.  Stock markets were buoyed by increasing expectations of passage of a $1.9 trillion stimulus package, strong corporate earnings reports, a rallying energy sector propelled by higher oil prices and positive news regarding vaccine availability.  Fed Chairman Powell’s comments on Wednesday stating the economy was still struggling and in need of more than accomodative monetary policy helped weaken the U.S. dollar and push 10-year U.S. Treasury rates higher. At week’s end the S&P 500 Index increased 1.2% to 3,934.83, the Nasdaq Composite Index rose 1.7% to 14,095.47, the 10-year U.S. Treasury rate increased 4bps to 1.21% and the U.S. dollar  (as measured by the ICE U.S. Dollar index - DXY) weakened 0.6%.

Oil prices moved higher again last week with WTI and Brent crude oil prices reaching levels not seen in over a year.   Brent crude oil prices broke $60/barrel last week while WTI crude oil prices closed the week just below at $59/barrel (both May futures prices).  Oil prices continue to be supported by continued larger-than-expected drawdowns in U.S and OECD inventory levels, strong Chinese demand,  OPEC+ production restraint and increased expectations of passage of a $1.9 trillion U.S. stimulus package.   Both WTI and Brent crude oil futures contracts continue to trade in backwardation indicating investor concern regarding possible supply shortages relative to prospective demand. 

Precious metal prices moved higher last week with platinum prices surging almost 9%.  Investor demand supported platinum and silver prices with silver ETPs reporting large inflows on Friday, for example.  Gold prices, up over 1.5% through Wednesday supported by a weakening U.S dollar and increasing expectations of passage of a large U.S. stimulus package, fell the remainder of the week as a result of a stabilizing U.S. dollar and a tepid CPI release.  Gold prices closed the week a little over ½  percent higher .

Base metal prices mainly increased throughout the week supported by a weaker U.S. dollar, strong demand dynamics, falling inventory levels and continued production concerns.  Zinc prices, up over 6% on the week, also benefited from continued strong galvanized steel demand.   Increasing inflation concerns also supported base metal prices while the start of the Chinese New Year had limited effect on prices.

After reaching multi-year highs the previous week, wheat and corn prices moved lower last week mainly suffering from Tuesday’s USDA report showing larger-than-expected ending stock levels and lower-than-expected exports.  Nonetheless, grain prices continue to be supported by strong Chinese demand and adverse weather conditions in South America as well as by a weaker U.S. dollar.

Coming up this week    

  • Busier data-week with retail sales, housing and homes info and release of FOMC minutes.
  • Empire State Manufacturing Index on Tuesday.
  • PPI, Retail Sales, Industrial Production, Housing Market Index and FOMC Minutes on Wednesday.
  • Jobless claims, Housing Starts and Permits and Philadelphia Fed Mnfg Index on Thursday.
  • PMI Compositie Flash and Existing Home Sales on Friday.
  • EIA petroleum status report on Thursday 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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