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Commoditized Wisdom: Metals & Markets Update (November 20, 2020)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (November 20, 2020)

Key points

  • With the exception of natural gas prices, energy prices were all higher again last week. WTI crude oil prices rose 5%, gasoline prices increased 4% and heating oil prices increased a little over 6%. Natural gas prices fell 11%.
  • Grain prices were mixed with, once again, wheat prices falling and corn and soybean prices rising. Wheat prices fell less than ½ percent while corn prices increased 2% and soybean prices increased 3%.
  • Base metal prices were all higher last week. Zinc prices rose the most, increasing 6%, followed by copper prices, up 4%. Aluminum prices increased 3% and nickel prices rose about 1.5%.
  • Gold and silver prices fell last week while platinum prices sharply increased. Gold prices decreased about ¾ percent and silver prices fell just under 2%.  Platinum prices rose 6.5%.
  • Coffee prices increased over 5%.
  • The Bloomberg Commodity increased for the 3rd consecutive week, gaining just over ½ percent. The grains, softs and base metal sectors contributed to its increase while the precious metal and energy sectors detracted.
  • Total assets in commodity ETPs dropped last week, falling another $1.5 billion. Gold ETP outflows were the predominate reason for the decline followed by silver, broad commodity and crude oil ETP outflows. 

Commentary

Rallying initially on Moderna’s positive vaccine results, U.S. stock markets struggled the remainder of the week.  Increasing Covid-19 cases, widening coroanvirus-related restrictions, weaker-than-expected retail sales and larger-than-expected jobless claims dampened market sentiment pushing U.S. stock markets off their Monday highs. At week’s end the S&P 500 Index decreased 0.8% to 3,557.54, the Nasdaq Composite Index increased 0.2% to 11,854.97, the 10-year U.S. Treasury rates fell 7bps to 83bps and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 0.4%.

Crude oil prices continued to move higher last week supported by Moderna’s positive vaccine results (released Monday), Pfizer’s updated, higher vaccine effectiveness, increased expectations OPEC+ would delay production increases planned for January and a lower-than-expected increase in U.S. inventories (as reported by the EIA).  Natural gas prices tumbled over 8% on Monday and then continued to move lower the remainder of the week on the back of forecasts for much warmer-than-usual weather through early December in the U.S.

Gold prices, only slightly lower through Wednesday last week, fell 0.6% on Thursday following Pfizer’s updated, higher vaccine effectiveness and increased outflows from U.S. gold ETPs.   Silver prices followed gold prices.  Platinum prices rose sharply benefiting from both a weaker U.S. dollar and reports from the WPIC of a significant platinum supply deficit.

Base metal prices moved higher last week supported by positive vaccine news from Moderna and Pfizer, expectations of copper mining disruptions in Peru and strong Chinese demand. Copper inventory drawdowns in China and China flipping to a net importer of aluminum supported copper and aluminum prices.   Falling stainless steel prices dampened nickel price increases.  A weaker U.S. dollar also supported base metal prices.

Corn and soybean prices continued to move higher last week mainly lifted by strong Chinese demand spurred by reviving hog herds and dry weather and forecasts of lower U.S. harvest yields.  Wheat prices were slightly weaker despite continued dry weather globally and forecasted lower U.S. harvest yields.

Coffee prices pushed higher last week benefiting from concerns of La Nina-caused hot dry weather and a strengthening Brazilian real relative to the U.S. dollar.

Coming up this week      

  • Relatively busy holiday-shortened data-week, with most data released on Wednesday. Notable releases include second-estimate Q3 GDP, Durable Goods Orders and Jobless Claims on Wednesday.
  • PMI Composite Flash on Monday.
  • Consumer Confidence on Tuesday.
  • Durable Goods Orders, Q3 GDP 2nd estimate, International Trade in Goods, Jobless Claims, New Home Sales and Consumer Sentiment on Wednesday.
  • Fed Balance Sheet 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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