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Commoditized Wisdom: Metals & Markets Update (Week Ending April 8, 2022)

Commoditized Wisdom: Metals & Markets Update (Week Ending April 8, 2022)

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Topic: Commodities
Commoditized Wisdom: Metals & Markets Update (Week Ending April 8, 2022)

Key points

  • Energy prices, except for natural gas prices, moved lower again last week. May WTI and July Brent crude oil futures prices decreased 1.0% and 0.6%. respectively.    Heating oil and gasoil prices fell between 3% and 4% and gasoline prices decreased 0.7%.  Natural gas prices rose almost 10%.
  • Grain prices were all higher. Chicago and Kansas wheat prices rose 7% and 9%, respectively.  Corn and soybean prices increased 5% and 7%, respectively.   
  • Precious metal prices were mainly higher. Spot gold and silver prices rose 1.1% and 0.7%, respectively.  Spot platinum prices fell 0.6 while palladium prices increased almost 7%.
  • Base metal prices were mixed. Aluminum and zinc prices fell a little over 2%. Copper prices increased 1% and nickel prices rose 2%.
  • The Bloomberg Commodity Index increased 2.1%. The grains sector was responsible for 2/3 of the gain with the energy sector providing about 1/3 of the gain.   Only the livestock sector moved lower on the week.
  • More flows into commodity ETPs last week with decent inflows, again, into silver ETPs. Inflows into gold ($89m), broad commodity ($98m), agriculture ($64m) and silver ($196m) ETPs were partially offset by outflows from crude oil (-$60m) ETPs.

Commentary

A down week for U.S. stock markets with the Nasdaq Composite Index significantly underperforming the Dow Jones Industrial Average and, to a lesser extent, the S&P 500 Index.  The underperformance of Tech/growth stocks vis a vis value/cyclical stocks last week followed statements by Fed President Brainard Tuesday and the release of FOMC minutes Wednesday both strongly suggesting the Fed will act aggressively to subdue current high levels of inflation.  Anticipated Fed action included 50bp rate hikes 1 or more times and an immediate $95 billion reduction in the Fed’s balance sheet in May.  10-year U.S Treasury rates soared as result, increasing more than 30bps over the week to finish at a 3-year high and, in the process, punishing tech/growth stocks.   While most of the increase in the 10-year U.S. Treasury rate came from a rise in real rates, it’s interesting to note that 10-year inflation expectations increased 6bps over the week to 2.88%.  At week’s end, the S&P 500 Index decreased 1.3% to 4,488.28, the Nasdaq Composite Index fell 3.9% to 13,711.00, the Dow Jones Industrial Average edged 0.3% lower to 34,723.03, the 10-year U.S. Treasury rate jumped 32bps to 2.70% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.32%.

WTI crude oil prices rose over 4% Monday, spurred higher by threats of additional sanctions on Russia following reports of atrocities committed in Ukraine.  Those gains were short lived, however, with prices falling over 1% Tuesday and then another almost 6% Wednesday in reaction to a 60-million-barrel reserve release by IEA member states, a larger-than-expected increase in U.S. oil inventories, Chinese Covid-related lockdowns and a stronger U.S. dollar (a result of FOMC minutes released Wednesday).      Prices stabilized Thursday and rose about 2% Friday with markets seemingly skeptical about the EU’s ability to sanction Russian energy imports and increasing concerns lower prices brought about U.S and IEA reserve releases would reduce or delay increases in shale oil production.   For the week, WTI and Brent crude oil prices decreased 1.0% and 0.6%, respectively.   Natural gas prices rose nearly 10%, propelled by a larger-than-expected weather-related decline in U.S. inventories, increasing LNG exports and rising coal prices.

Gold prices rose last week despite substantially higher 10-year U.S. Treasury rates and a stronger U.S. dollar.  While haven-investment demand, emanating from the Russia-Ukraine war, helped support gold prices, increased inflation concerns resulting from Fed Governor Brainard’s comments Tuesday and the release of the FOMC minutes Wednesday, seemingly provided the major impetus to move prices higher.  Though 10-year U.S. Treasury rates have increased 1.2% YTD, to levels not seen since 2019, 10-year inflation expectations have risen 28bps from already elevated levels and despite Fed indications of aggressive tightening.    Palladium and platinum prices, both down over 3% mid-week, rose substantially Friday on news the LPPM would not allow trading of newly refined palladium and platinum.   Silver prices rose with gold prices.

Base metal prices were mixed last week.  Copper and nickel prices ended the week higher bolstered by supply concerns due to sanctions on Russia and, for copper, lower-than-expected Chilean mining production.  Aluminum and zinc prices fell over the week on falling demand expectations due to Chinese Covid-related lockdowns.

Strong week for grains.  Wheat prices, up between 7% and 9%, benefited from continued supply concerns due the Russia-Ukraine war and from much lower-than-expected U.S. winter crop ratings.   Corn prices, up almost 5% on the week, also were supported by Ukraine-Russia-related supply concerns as well as strong Chinese buying.   Soybean prices, up 7% last week, continued to be supported by weather-related South America supply concerns and lower-than-expected production forecast in Friday’s USDA WASDE release.

Coming up this week    

  • Light data-week punctuated by CPI Tuesday and PPI Wednesday.
  • CPI on Tuesday.
  • PPI on Wednesday.
  • Jobless Claims, Retail Sales and Consumer Sentiment on Thursday.
  • NY Empire State Mfg Index and Industrial Production on Friday.
  • EIA Petroleum Status Report Wednesday and Baker-Hughes Rig Count on Friday.

Who is Jeff Klearman in our research team? 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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