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Commoditized Wisdom: Metals & Markets Update (October 30, 2020)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (October 30, 2020)

Key points

  • Except for natural gas prices, energy prices were all lower last week, falling between 2% and 3%. WTI and Brent crude oil prices decreased 10% and gasoline prices fell 9%.  Natural gas prices rose 4.5%.
  • Grain prices all moved lower as well with wheat and corn prices dropping close to 5% and soybean prices falling over 2%.
  • Except for aluminum prices, base metal prices all moved lower last week. Nickel prices decreased the most, losing 3.5%, copper prices fell 2.5% and zinc prices lost 1.5%. Aluminum prices increased just under ½ percent.
  • Gold prices fell a little over 1%, silver dropped 4% and platinum prices lost just over 7%.
  • The Bloomberg Commodity Index decreased 2.34%. All sectors, except for livestock, moved lower last week with the energy and grains sector falling the most followed by the precious and base metals sectors.
  • Commodity ETPs saw another $500 million of outflows last week primarily from gold, silver and crude oil ETPs.

Commentary

The S&P 500 and Nasdaq Composite Indexes turned in their worst weekly performance since March last week as Covid -19 cases increased globally, restrictions and lockdowns were implemented in Europe and as the Senate adjourned all but eliminating passage of a stimulus before the election.  A much better-than-expected 3rd quarter GDP number and lower-than-expected jobless claims both released on Thursday briefly supported U.S. stock markets and helped move 10-year U.S. Treasury rates higher.   The U.S. dollar strengthened, buoyed by haven investors reacting to volatile, falling stock markets around the world.  At week’s end the S&P 500 Index dropped 5.6% to 3,269.96, the Nasdaq Composite Index fell 5.5% to 10,911.59, the 10-year U.S. Treasury rate rose 4bps to 88bps and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 1.4%.

WTI crude oil prices moved sharply lower last week only pausing briefly on Tuesday with Gulf platform shutdowns due to tropical storm Zeta.  Growing global Covid-19 cases combined with new restrictions and lockdowns in Europe as well as a much bigger-than-expected increase in U.S. oil inventories helped move WTI prices down 10% last week.  A much stronger U.S. dollar also pressured oil prices lower.

Slightly higher through Tuesday, gold prices moved lower the remainder of the week affected by a strengthening U.S. dollar as haven investors sought the U.S dollar in the wake of increasing Covid-19 cases globally and new European restrictions and lockdowns.   The ECB’s announcement that policy changes may occur in coming months added to the U.S. dollar’s strength against the euro.   Silver and platinum prices followed suit but fell more sharply than gold prices.

Base metal prices, too, moved lower on the back of increasing Covid-19 cases, new European restrictions and lockdowns and a stronger U.S. dollar.   

Wheat, corn and soybean prices moved lower on no real news and despite strong export numbers.  Coronoavirus-related demand concerns and a stronger U.S. dollar combined perhaps with profit-taking may have helped move prices lower.

Coming up this week      

  • Busy data-week punctuated by a 2-day FOMC meeting, ISM and PMI Manufacturing and Services indexes and the Employment Situation report on Friday.
  • PMI and ISM Manufacturing Indexes and Construction Spending on Monday.
  • Factor Orders on Tuesday.
  • 2-Day FOMC meeting begins, ADP Employment Report, Intl Trade in Goods and Services, and PMI Composite and ISM Services Indexes on Wednesday.
  • Jobless Claims, Productivity and Costs, FOMC Announcement and Jerome Powell Press Conference on Thursday.
  • Employment Situation Report on Friday.
  • EIA petroleum 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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