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Commoditized Wisdom: Metals & Markets Update (Week Ending May 20, 2022)

Commoditized Wisdom: Metals & Markets Update (Week Ending May 20, 2022)

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Topic: Commodities
Commoditized Wisdom: Metals & Markets Update (Week Ending May 20, 2022)

Key points

  • Energy prices were mixed with natural gas and WTI Crude oil prices higher and gasoline, heating oil and Brent Crude oil prices lower. Natural gas prices increased 5.3% and WTI crude oil prices gained 1.5%.  Gasoline and heating oil prices fell 2.5% and 3.7%, respectively, and Brent crude oil prices decreased 0.4%.
  • Grain prices were mixed. Wheat prices fell between 1% and 2% and corn prices fell 0.3%. Soybean prices increased 3.5%.
  • Precious metal prices were all higher. Spot gold prices increased 2% and spot silver prices rose just over 3%. Platinum prices were up 1%.
  • Base metal prices were all higher as well. Aluminum and zinc prices rose 6% and copper and nickel prices increased close to 2.5%.
  • The Bloomberg Commodity Index increased 1.8%. All sectors performed positively last week with the energy and base and precious metals sectors contributing the most to the Index’s performance.
  • Net outflows from commodity ETPs last week with broad commodity ETPs responsible for the vast majority and offset slightly by gold and agriculture ETP inflows. Broad commodity ETPs saw outflows of $1.1 billion while gold and agriculture ETPs saw inflows of $346 million and $237 million, respectively.

Commentary

Another down week for U.S. stock markets accompanied by continued volatility.   Stock prices rose early in the week, with the S&P 500 index increasing 2% Tuesday on stronger-than-expected retail sales as well as on increased risk-on sentiment.  That sentiment disappeared Wednesday with all 3 major stock market indexes falling south of 3.5%, precipitated by weaker-than-expected earnings reports from major retailers including Walmart and Target.  Elevated concerns of decreased consumer spending and lower corporate profits due to high levels of inflation pushed  stock prices lower the remainder of week Despite Fed Chairman Powell’s comments Tuesday reiterating the Fed’s resolve to restore price stability, the 10-year U.S. Treasury rate fell 14bps over the week and the U.S. dollar weakened.  Interestingly, the decline came entirely from falling 10-year inflation expectations with 10-year real rates remaining unchanged. 10-year inflation expectations closed the week at 2.59%, down from almost 3% a few weeks ago. At week’s end, the S&P 500 Index fell 3.0% to 3,901.36, the Nasdaq Composite Index dropped 3.8% to 11,354.62, the Dow Jones Industrial Average fell 2.9% to 31,260.58, the 10-year U.S. Treasury rate decreased 14 bps to 2.79% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 1.5%.

A volatile week for oil prices as well with prices pushed and pulled by competing supply and demand concerns.  Reports Monday that China may be easing Covid-related restrictions in Shanghai helped move WTI crude oil prices nearly 3% higher while increasing concerns of slowing global economic growth due to central bank tightening (prompted by Fed Chairman Powell’s comments Tuesday) along with indications the U.S. is working to access Venezuelan oil pushed prices nearly 4% lower Tuesday through Wednesday.  Prices than rallied almost 3% the remainder of the week with renewed expectations China will reduce lockdowns and on increased expectations the EU will be able to agree on an embargo of Russian oil.   Wednesday’s EIA report, which showed larger-than-expected drawdowns in U.S. oil and gasoline inventories, had no effect on prices Wednesday but may have helped move prices higher Thursday. 

Spot gold prices moved higher last week posting gains every single day but Tuesday.  Lower 10-year Treasury rates combined with a weaker U.S. dollar supported gold prices despite Fed Chairman Powell’s hawkish comments Tuesday.   Falling, volatile stock markets along with increased concerns of recession may have increased safe-haven demand for gold, providing support for gold prices as well.  While 10-year Treasury rates fell last week (down 14bps) all of the decline came from falling 10-year inflation expectations perhaps reflecting increased expectations of slower economic growth or recession.         

Base metal prices moved higher last week with aluminum and zinc prices increasing the most.   Low LME aluminum inventory levels and scaled-back production due to high energy costs helped move zinc and aluminum prices higher.   Copper prices benefited from reports of soon-to-be-implemented easing of Chinese Covid-related restrictions.  Nickel prices moved sharply higher Thursday on declining inventory levels and forecasts of strong demand.

Wheat prices soared Monday and Tuesday, increasing over 8% on news of India banning exports.  Wheat prices finished the week lower, however, with prices moving lower the remainder of the week with increased expectations of growing world wheat supplies bolstered by forecasts of a large Russian crop.  

Coming up this week    

  • Mfg and Services PMI, New and Existing Home sales, PCE Price Index and the FOMC Minutes headlines this week’s data releases.
  • Mfg and Services PMI, Markit Composite PMI and New Home Sales on Tuesday.
  • Durable Goods Orders and FOMC Minutes on Wednesday.
  • GDP, Jobless Claims and Pending Home Sales on Thursday.
  • Personal Income and Outlays and Consumer Sentiment 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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