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Commoditized Wisdom: Metals & Markets Update (Week Ending July 9, 2021)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (Week Ending July 9, 2021)

Key points

  • Energy prices were lower last week. WTI and Brent crude oil prices fell about ¾ percent and gasoline prices decreased about ½ percent.  Natural gas prices fell 0.3%. 
  • Grain prices were significantly lower.  Corn prices fell the most, decreasing just under 11%.  Wheat and soybean prices fell 5%.. 
  • Base metal prices were mainly higher with aluminum prices the sole exception. Copper and zinc prices rose about 1.5% and nickel prices gained 2 ¼ percent.  Aluminum prices fell 2.5%
  • Gold prices ended the week over 1% higher, platinum prices were unchanged and silver prices fell 1%.
  • The Bloomberg Commodity Index decreased 1.6%, primarily from lower grain and energy prices. Precious and base metals sectors helped offset losses.
  • About $500 million of ETP outflows last week primarily from gold (-$142m) and silver (-$305m) ETP outflows. Crude oil ETPs had smaller outflows of $55m.

Commentary

Despite an up-and-down week for U.S. stock markets, all three major U.S. stock indexes once again reached record highs.  Increasing concerns regarding the spread of the Delta Covid-19 variant and the resulting effect on economic growth as well as larger-than-expected jobless claims drove both U.S stock markets and the U.S. 10-year Treasury rate lower through Thursday.  The S&P 500 Index, for example was down almost ¾ percent through Thursday while the 10-year U.S Treasury rate was 14bps lower.  Stock markets rallied strongly and 10-year U.S. Treasury rates rose Friday on no real news but perhaps as coronavirus fears retreated and possibly as a result of the ECB’s decision to raise their inflation target while maintaining their current historically accommodative monetary policy   At week’s end, the S&P 500 Index increased 0.4% to 4,369.55, the Nasdaq Composite Index rose 0.4% to 14,701.92, the Dow Jones Industrial Average gained 0.2% to 34,870.16, the 10-year U.S. Treasury rate fell 7bps to 1.36% and the U.S. dollar  (as measured by the ICE U.S. Dollar index - DXY) weakened 0.1% percent.

Reeling from OPEC+ failing to agree on revised production levels and growing Delta-variant Covid concerns, WTI oil prices fell nearly 4% through Wednesday before rallying over 3% the remainder of the week.  Oil prices moved higher on Thursday thanks to a bullish EIA report showing a larger-than-expected drawdown in both oil and gasoline inventories as well as a greater-than-expected increase in gasoline demand.   

Gold prices moved higher last week benefiting from falling 10-year U.S. Treasury rates (with 10-year real rates falling to -92bps), larger-than-expected jobless claims and global growth concerns stemming from the spread of the Delta variant of Covid-19 and despite slightly hawkish FOMC minutes released on Wednesday.  

Base metal prices, lower through Thursday on coronavirus demand-related concerns as well as on tightening monetary policy concerns, moved sharply higher on Friday.  Strong demand for copper despite the release of additional Chinese reserves, the ECB’s decision to increase its inflation target and rallying globally stock markets bolstered prices Friday.   Aluminum prices moved lower after rallying strongly in previous weeks on news of Russian export taxes on aluminum.

Corn, soybean and wheat prices reversed a good portion of their previous week’s gains with improved weather outlooks driving prices lower. The September corn futures contract closed limit down Tuesday with the September soybean futures contract down sharply, nearly avoiding a limit move lower.

Coming up this week    

  • Somewhat busy data-week with CPI and PPI earlier in the week, retail sales on Friday and Fed Chairman Jerome Powell testifying before congress Wednesday and Thursday.
  • CPI on Tuesday.
  • PPI and Jerome Powell Testimony on Wednesday.
  • Jobless Claims, Phil Fed Mfg Index, Industrial Production and Jerome Powell Testimony on Thursday.
  • Retail Sales and Consumer Sentiment 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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