Commoditized Wisdom: Report (Week Ending January 26, 2024)
Posted:
Key points
Energy prices, except for natural gas prices again, were higher. WTI and Brent crude oil, gasoline and heating oil prices were up 6% to 7%. Gasoil prices rose 5%. Natural gas prices fell 3%.- Grain prices again were mainly higher. Wheat prices were up between 1% and 3%. Soybean prices were almost unchanged and corn prices fell less than ½ percent.
- Spot gold prices fell less than 1%, spot silver prices climbed 1% and spot platinum prices gained 2%.
- Base metal prices were all higher. Aluminum, zinc and nickel prices rose 5%, lead prices gained 4% and copper prices increased 2%.
- The Bloomberg Commodity Index rose 2.1% mainly due to gains in the energy and base metals sectors.
- Small net inflows last week, predominantly from silver ETPs but also from energy (ex-crude oil) ETPs. Those inflows were offset primarily by gold ETP outflows.
Commentary
Another up-week for stock markets with all 3 major indexes gaining at least 0.7%. Tech stock performance was the main factor driving indexes higher last week with Microsoft (MSFT) becoming the second stock to reach a $3 trillion market cap. Netflix and IBM also contributed to last week’s performance while Tesla, Goldman, 3M and Home Depot detracted. While Thursday’s Q1 GDP release was much better-than-expected (increasing Fed rate-cut uncertainty after Wednesday’s improved S&P Composite PMI release), the report also showed slowing inflation with a lower-than-expected Q1 core and headline PCE Price Index change (effectively negating the stronger-than-expected GDP release). Markets mainly moved lower Friday, brushing off a lower-than-expected PCE Price Index release, focusing on Intel’s weak Q1 sales outlook, moving most chip stocks lower. For the week, the S&P 500 Index rose 1.1% to 4,890.97, the Nasdaq Composite Index gained 0.9% to 15,455.36, the Dow Jones Industrial Average increased 0.7% to 38,109.43, the 10-year U.S. Treasury rate increased 1bp to 4.14% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 0.2%.
Oil prices moved sharply higher last week, bolstered by Red Sea related tensions, supportive economic data and Chinese stimulus measures. Prices also were supported by a Ukrainian attack on a Russian fuel terminal, continued cold-weather related U.S. production disruptions and a larger-than-expected drawdown in U.S. oil inventories. Lower-than-expected inflation offset a better-than-expected Q1 GDP release (in the U.S.) while an as-expected ECB rate decision accompanied by dovish ECB Pres. Lagarde comments also contributed to oil price gains.
Spot gold prices moved lower again last week, seemingly affected by continued risk-on sentiment alongside increased uncertainty regarding the extent and timing of Fed rate cuts. Prices fell Monday and Wednesday, reacting partially to rallying stock prices but also to strong economic data (i.e, better-than-expected business activity). Gold prices moved off intraweek lows Thursday despite a better-than-expected Q1 GDP release, bolstered by a lower-than-expected Q1 PCE Price Index level. Silver and platinum prices were up on the week, moving more in line with base metal prices.
Base metal prices moved higher last week, propelled mainly by BoC and Chinese government stimulus measures. Tuesday’s promise to inject more funds into the capital markets and Wednesday’s BoC move to reduce bank cash reserve requirements worked to drive prices higher. Aluminum and nickel prices also benefited from possible EU sanctions on Russian metals producers.
Corn and soybean prices, higher through Wednesday on reduced Brazil and Argentina yield and production forecasts, reversed those gains over Thursday and Friday on uncertainty surrounding those same forecasts and on improved weather outlooks. Wheat prices rose through midweek on no real news (apparently on short covering and perhaps on Chinese stimulus measures), fell sharply Friday following news of Chinese attempts to convince Iran to halt backing of Red Sea attacks.
Coming Up This Week
FOMC announcement and payroll report are the main focus this week.
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.
