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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.
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