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Commoditized Wisdom: Metals & Markets Update (Week Ending April 16, 2021)

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Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (Week Ending April 16, 2021)

Key points

  • Energy prices moved sharply higher last week, increasing between 4% and 6.5%. WTI and Brent crude oil prices rose 6% and 6.5%, respectively.  Natural gas and heating oil prices rose about 5% and gasoline prices increased 4%.
  • Grain prices were all higher again last week. Wheat prices rose between 2% and 4%.  Corn and soybean prices increased 2%. 
  • Base metal prices, except for nickel prices, were all higher as well. Copper prices gained 3%, aluminum prices rose 2% and zinc prices increased 1%.  Nickel prices lost 1.5%.
  • Gold and silver prices moved higher with gold prices increasing 2% and silver prices increasing 3% Platinum prices fell 1/3 percent.
  • Coffee, cotton and sugar prices ended the week higher. Sugar prices surged 7.5% and cotton and coffee prices increased 1.5%
  • The Bloomberg Commodity Index increased 3%. The energy sector performed the best. The only sector with negative performance was the livestock sector.
  • Small net ETP outflows last week with gold, silver and crude oil ETPs seeing outflows and broad commodity ETPs seeing good inflows. Gold ETP AUM declined by $400 million and silver and crude oil ETP AUM decreased by $100 million each.  Commodity ETPs saw inflows of almost $240 million.

Commentary

The FDA suspension of J&J’s vaccine and uncertainty regarding earnings releases left U.S. stock markets directionless and slightly lower through Wednesday last week.  Very strong bank earnings reports, lower-than-expected jobless claims and much stronger-than-expected retail sales and housing starts and permits powered U.S. stock markets higher with both the S&P 500 Index and Dow Jones Industrial Average reaching new highs.   10-year U.S. Treasury rates fell 9bps on the week pushed lower by  strong auction demand for U.S. Treasury notes and despite stronger-than-expected economic data and Fed Chair Powell’s comments the Fed would likely scale back bond purchases well before increasing rates.  For the week, the S&P 500 Index increased 1.4% to 4,185.47, the Dow Jones Industrial Average increased 1.2% to 34,200.67, the Nasdaq Composite Index increased 1.1% to 14,052.34, the 10-year U.S. Treasury rate fell 9bp to 1.57% and the U.S. dollar  (as measured by the ICE U.S. Dollar index - DXY) weakened 0.7%.

Oil prices moved significantly higher last week buoyed by stronger-than-expected U.S. and Chinese economic data, improved demand forecasts and a larger-than-expected decline in U.S. stockpiles.  The EIA Petroleum Status Report, showing an almost 6 million barrel decrease in U.S. inventory levels while at the same time only showing a small increase in gasoline supplies, helped power WTI and Brent crude oil price almost 5% higher on Wednesday.  Higher demand forecasts by OPEC, the EIA and the IEA and a weaker U.S. dollar also supported oil prices.

Gold prices move almost 2% higher in a week revealing very strong U.S. and Chinese economic data and higher-than-expected U.S. inflation numbers.  Longer-term U.S. Treasury rates, expected to rise due to last week’s large auctions of 10- and 30-year bonds, shrugged off inflation and supply concerns and moved lower as a result of strong U.S. and overseas demand benefiting gold prices.  Fed Chairman Powell’s comments saying it was highly likely the Fed would reduce its bond buyback program before raising rates while downplaying inflation concerns as well as a weaker U.S. dollar also helped push gold prices higher. 

Copper prices increased over 3% last week benefiting from very strong U.S. and Chinese economic data, a weaker U.S. dollar and perhaps as a result of Goldman Sachs' forecast that prices could move significantly higher due to “sustainable-energy” demand.  Aluminum and zinc prices moved higher, following copper prices.  Nickel prices ended the week lower, hurt by supply concerns.

Grain prices moved higher last week despite moving more than 1% lower across the board on Monday.  Bearish sentiment arising from the previous Friday’s WASDE report transformed into bullishness with growing weather-related concerns in the U.S. and abroad and stronger-than-expected Chinese soybean and corn demand.    Forecasts of dry, cold weather in the U.S. Plains states increased concerns of wheat crop damage and reduced expectations of soybean and corn planting.        

Sugar prices increased over 7.5% last week driven higher by reports that Brazilian mills produced 23% less sugar in March versus a year ago as a result of dry weather.

Coming up this week    

  • Very light data week highlighted by home sales data and the PMI Composite Flash index.
  • Jobless Claims and Existing Home Sales on Thursday.
  • PMI Composite Flash and New Home Sales 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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