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Commoditized Wisdom: Metals & Markets Update (September 25, 2020)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (September 25, 2020)

Key points

  • Energy prices all moved lower last week. Natural gas prices were the sole exception.   WTI crude oil prices decreased about 2.5%. Gasoil prices fell the most, losing 4.5%.  Natural gas increased approximately 6.5%
  • Grain prices gave up most of their previous week’s gains. Wheat prices fell about 5.5%, corn prices dropped 3.5% and soybean prices  lost 4%.
  • Base metal prices, too, were all lower. Zinc and copper prices decreased the most, falling approximately 6.5% and 4.5%, respectively. Nickel prices fell about 4.5%.
  • Gold, platinum and silver prices moved significantly lower. Gold prices declined 4.7%, platinum prices lost 10.5% and silver prices dropped just under 15%.
  • The Bloomberg Commodity index decreased 3.12% primarily due to negative performance in the precious metal, grains and base metal sectors.
  • Commodity ETPs experienced small inflows of about $180 million. Gold ETP ($468m) inflows were partially offset by silver (-$170.8m), crude oil (-$84.3m) and agriculture (-$26.4m) ETP outflows.

Commentary

Amid growing concerns regarding increasing Covid-19 cases and Congress’ ability to pass another stimulus package, U.S. stock markets experienced increased volatility and ended the week mostly lower. Fed Chairman Jerome Powell, testifying before Congress, reiterated the need for further fiscal stimulus to support further economic growth.  Treasury Secretary Steve Mnuchin, also testifying before Congress, indicated on Friday that the Trump administration would be willing to renew stimulus package negotiations supporting equity markets.  Still, uncertainty regarding the passage of a stimulus package persisted.  The U.S. dollar sharply strengthened last week with the Euro and British pound weakening on increased coronavirus-related concerns and as investors purchased U.S. dollars as a haven investment.  At week’s end the S&P 500 Index decreased 0.6% to 3,298.46, the Nasdaq Composite Index increased 1.1% to 10,913.56, the 10-year U.S. Treasury rate fell 4bps to 65bps and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 1.8%.

Down over 4% on Monday on increasing global Covid-19 cases, expectations of increased Libyan oil production and U.S stimulus package uncertainty,  WTI crude oil prices rose the remainder of the week after indications there will be renewed stimulus package negotiations and U.S. stock markets stabilized.  Natural gas prices rose on forecasts of cooler-than-normal weather in the U.S. Mid-West.

Precious metal prices moved lower last week with silver and platinum prices down double digits.  Increasing Covid-19 cases along with expectations of renewed lockdown restrictions in Europe as well as in the U.S. pushed the U.S. dollar sharply higher versus the Euro and British pound exerting strong downward pressure on precious metal prices.    The U.S. dollar sharply strengthened last week with investors purchasing U.S. dollars as a haven investment. 

Base metal prices moved lower last week affected by both increasing Covid-19 cases and a sharply stronger U.S. dollar.   Renewed concerns of coronavirus-related demand destruction helped push base metal prices lower as did a stronger U.S. dollar lifted higher by investor safe haven purchasing.

A slowdown in Chinese imports and better-than-expected crop ratings helped move corn and soybean prices lower last week. Grain prices suffered from increased coronavirus-related concerns and a stronger U.S. dollar. 

Coming up this week      

  • Busy data-week with a number of purchasing manager index releases, PCE numbers and capped off with the Employment Situation Report on Friday.
  • Goods Trade and Consumer Confidence on Tuesday.
  • ADP Employment Report, 2nd quarter GDP final revision and Pending Home Sales on Wednesday.
  • Jobless Claims PCE numbers, PMI and ISM Manufacturing Indexes, Construction Spending and the Fed Balance Sheet on Thursday
  • Employment Situation Report, Consumer Sentiment and Factory Orders 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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