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Commoditized Wisdom: Metals & Markets Update (October 9, 2020)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (October 9, 2020)

Key points

  • Energy prices moved significantly higher last week. Natural gas prices increased the most (up 12.5%) followed by heating oil prices (up 10%) and WTI crude oll prices (up 9.6%). 
  • Wheat, corn and soybean prices increased between 4% and 5% with Kansas wheat prices rising the most.
  • Base metal prices, too, were all higher last week, increasing between 3.5% (copper) and 5.5% (nickel).
  • Gold and silver prices increased while platinum prices were practically unchanged. Gold prices increased a little over 1% and silver prices rose 4.5%.
  • The Bloomberg Commodity index soared last week increasing 4.92%. All sectors contributed to the increase with energy, grains and base metal sectors contributing the most.
  • Small outflows from commodity ETPs last week (-$138.5m). Energy (ex-crude oil) (+$111.6m) ETP inflows were offset by gold (-$125.3m), silver (-$51.5m), agricultural (-$36.1m) and crude oil (-$31.2m) ETP outflows.

Commentary

Increased optimism over passage of a stimulus package and news President Trump would return to the White House later Monday pushed U.S stock markets higher on Monday with the S&P 500 Index increasing almost 2%.   Those gains were mostly erased on Tuesday after President Trump tweeted there would be no stimulus negotiations till after the election.  Positive economic reports combined with President Trump’s reversal on stimulus negotiations pushed U.S. stock markets higher the rest of the week with the S&P 500 Index recording its best week since July.  At week’s end the S&P 500 Index rose 3.8% to 3,477.13, the Nasdaq Composite Index climbed 4.6% to 11,579.94, the 10-year U.S. Treasury rate increased 7bps to 77bps and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened another 0.8%.

Oil prices moved higher throughout most of last week only pausing on Wednesday after President Trump tweeted late Tuesday that there would be no stimulus negotiations until after the election.  A combination of factors moved crude oil prices higher through Thursday including Gulf of Mexico production shutdowns due to Tropical Storm Delta, Norway production reduction due to striking oil workers, President Trump’s early return to the White House and revived optimism over a congressional stimulus package.  Crude oil prices fell on Friday following the ending of the oil strike in Norway.

Gold prices somewhat mirrored U.S. equity markets, ultimately moving higher on increased optimism of fiscal stimulus package and a weaker U.S. dollar.   Silver prices moved higher with gold and base metal prices.

Base metal prices also somewhat mirrored U.S. stock markets moving higher on Monday, falling on Tuesday and then rallying the remainder of the week to end the week decently higher.  Increasing Covid-19 cases and President Trump's tweet saying no stimulus negotiations till after the election moved base metal prices to their lows of the week on Tuesday.  Increasing expectations of a U.S. stimulus package and a weaker U.S. dollar pushed base metal prices higher the remainder of the week.

Grain prices moved significantly higher last week with wheat prices recording a 5-year high on Thursday.  A combination of dry conditions in the U.S. Plains, Russia, Eastern Europe, Argentina and Brazil, increased U.S. exports and Friday’s USDA report showing lower-than-expected inventory levels all helped move grain prices higher.

Coming up this week      

  • Data releases this week concentrated in Thursday and Friday.
  • CPI on Tuesday.
  • PPI on Wednesday.
  • Jobless Claims, Philadelphia and Empire State Mfg Indexes, Import and Export Prices and Fed Balance Sheet on Thursday.
  • Retail Sales, Industrial Production and Consumer Sentiment on Friday..
  • EIA petroleum 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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