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Commoditized Wisdom: Metals & Markets Update (Week Ending January 14, 2022)

Commoditized Wisdom: Metals & Markets Update (Week Ending January 14, 2022)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (Week Ending January 14, 2022)

Key points

  • Energy prices once again moved higher. WTI and Brent crude oil prices increased 6.2% and 5.2%, respectively. Gasoline and gasoil prices increased 5.1% percent. Heating oil prices rose 5.2% and natural gas prices jumped 9.5%.
  • Grain prices were all lower. Chicago and Kansas wheat prices fell 2.2% and 3.9%, respectively. Corn prices decreased 1.7% and soybean prices lost 2.9%.
  • Precious metal prices moved higher.  April gold and March silver futures prices increased 1.1% and 2.3%, respectively.  Platinum prices increased 2.0%.
  • Base metal prices mainly moved higher.  Aluminum and nickel prices increased 2.2% and 7.1%, respectively, copper prices rose 0.2% and zinc prices fell 0.3%.
  • The Bloomberg Commodity Index increased 2.2%, primarily benefiting from higher energy prices as well as higher precious and base metals prices.  The grains sector was the only negatively performing sector.
  • Small net inflows ($153m) into commodity ETPS almost all from broad commodity ($259m) ETP inflows.  Energy (ex-crude oil), crude oil and silver ETPs had combined outflows of $83m.

Commentary

U.S. stock markets moved lower last week with the Dow Jones Industrial Average underperforming both the Nasdaq Composite Index and the S&P 500 Index.   Elevated inflation levels exhibited by both CPI and PPI releases Wednesday and Thursday, respectively, capped market gains strengthening expectations of a more aggressive Fed.      The S&P 500 and Nasdaq Composite Indexes, up over 1% through Wednesday, fell sharply Thursday following a PPI release showing a record high 9.7% YoY increase, pushing both indexes into negative territory for the week.  Friday’s weaker-than-expected retail sales report and disappointing JPMorgan earnings guidance limited S&P 500 gains and pushed the Dow Jones Industrial Average lower.     The 10-year U.S. Treasury rate rose 2bps on the week but with significant swings, falling 5bps to 1.70% Thursday and then rising 9bps to 1.79% Friday.   10-year U.S. real rates were also volatile, falling 9bps to -0.86% Tuesday and then rising 16bps the rest of the week to finish at -0.70%.    At week’s end, the S&P 500 Index decreased 0.3% to 4,662.85, the Nasdaq Composite Index decreased 0.3% to 14,893.80, the Dow Jones Industrial Average fell 0.9% to 35,911.28, the 10-year U.S. Treasury rate increased 2bps to 1.79% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 0.6%.

Expectations of high demand, falling inventory levels and OPEC+ production setbacks pushed oil prices sharply higher again last week. Wednesday’s EIA report, showing a much larger-than-expected decline in U.S. oil stocks combined, continued OPEC+ underproduction and lessening fears of Omicron demand destruction helped boost March WTI crude oil futures prices to over $83/barrel.  A weaker U.S. dollar also supported oil prices.

Buoyed by dovish comments from Fed Chair Jerome Powell in his Tuesday’s testimony, gold prices moved 1.6% higher through Wednesday.  Powell’s comments, proclaiming the Fed’s monetary policy was far from restrictive, weakened the U.S. dollar and pushed 10-year real rates almost 10bps lower, pushing gold prices over 1% higher.   Following higher-than-expected CPI and PPI releases Wednesday and Thursday, gold prices eased lower from their intraweek highs as 10-year real rates rebounded and the U.S. dollar moved off its lows, both reflecting increased Fed tightening concerns.   

Aluminum prices soared last week, increasing just over 7%, propelled by strong EV-battery demand and falling inventory levels.    Copper prices - up almost 4% through Wednesday on supply concerns, a weaker U.S. dollar and expectations of PBOC stimulus – fell almost 3% Friday on renewed concerns of slowing Chinese economic growth and a more aggressive Fed following high CPI and PPI releases.

Grain prices were lower across the board pressured by favorable South America weather forecasts and weaker-than-expected exports.  Though Wednesday’s USDA WASDE report showed declining soybean production and inventory levels, soybean (and corn) prices moved lower with forecasts of  much-needed rain in Brazil and Argentina.   Wheat prices also suffered from favorable weather forecasts and favorable crop expectations in Australia.

Coming up this week    

  • Light data-week with housing data and jobless claims accentuationg the week.
  • New York State Mfg Index on Tuesday.
  • Housing Starts and Permits on Wednesday.
  • Jobless Claims, Philadelphia Fed Mfg Index and Existing Homes Sales on Thursday.
  • 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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