Commoditized Wisdom: Report (Week Ending January 5, 2025)
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Key points
Energy prices were all higher last week. WTI and Brent crude oil, heating oil and gasoil prices rose 2% to 3% and gasoline prices increased about ¼ percent. Natural gas prices surged 13%.- Grain prices were all lower. Wheat and corn prices fell 2% and soybean prices dropped 3%.
- Spot gold prices decreased 1% and spot silver and platinum prices lost 3%. Spot palladium prices dropped 6%.
- Base metal prices were lower as well. Aluminum prices fell 5%, zinc prices lost 4% and copper and nickel prices decreased 2%.
- The Bloomberg Commodity Index increased 0.1%. Gains in the energy sector were offset by losses primarily in the grains and metals sectors.
- Sizeable outflows from gold ETPs and smaller outflows from broad commodity ETPs. Crude oil ETPs saw the only inflows.
Commentary
Stock markets moved lower last week with all 3 major indexes losing ½ percent or more. The Nasdaq Composite Index fared the worst, sharply underperforming both the S&P 500 Index and the Dow Jones Industrial Average. The underperformance stemmed from weak tech stock performance with Apple share prices, for example, falling nearly 6% on the week following downgrades by analysts. The broader move lower, however, resulted from renewed concerns regarding the timing and extent of Fed rate cuts this year. Rate cut expectations may have been scaled back, driving longer-term Treasury rates higher, strengthening the U.S. dollar and precipitating some risk-off sentiment. Economic data released last week contributed to these renewed concerns with a stronger-than-expected payroll report (Friday) and lower-than-expected jobless claims (Thursday). Friday’s weaker-than-expected ISM Non-Manufacturing PMI seemed to slightly diminish those same concerns, perhaps helping stock markets rise slightly on Friday. For the week, the S&P 500 Index fell 1.5% to 4,697.24, the Nasdaq Composite Index dropped 3.3% to 14,527.07, the Dow Jones Industrial Average decreased 0.6% to 37,466.11, the 10-year U.S. Treasury rate rose 18bps to 4.05% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 1.1%.
A volatile week with oil prices ending higher but pushed and pulled by diminishing central bank rate-cut expectations and rising tensions in the Middle East and Red Sea. Higher-than-expected euro zone inflation combined with a stronger-than-expected U.S. payroll report worked to limit price grains (via lowered demand expectations vis-a-vis increased higher-rates-for-longer expectations) while increased Middle East tensions worked to move prices higher. Also limiting gains was a much larger-than-expected build in gasoline and distillate inventories (EIA report Thursday). Natural gas prices jumped 13% higher, propelled by near-term U.S. cold weather forecasts.
Spot gold prices fell last week pushed lower by renewed concerns the Fed may not ease as quickly or as much as expected. Wednesday’s FOMC Minutes release drove prices almost 1% lower with minutes revealing uncertainty with regard to rate cuts. Despite lower-than-expected jobless claims and a better-than-expected payroll report, gold prices rose with markets revisiting FOMC minutes and noting a weaker-than-expected ISM Services PMI release, somewhat reducing Fed rate-cut uncertainty.
Copper prices also moved lower last week, primarily due to a stronger U.S. dollar. Stronger-than-expected U.S. economic data and weak Chinese economic data combined to reduce demand expectations while at the same time strengthening the U.S. dollar. China’s official manufacturing PMI index showed continued weakness while U.S. employment data showed continued resilience.
Grain prices were all lower last week. Corn and soybean prices fell on the back of continued favorable South American weather and weather forecasts. Corn prices were also pressured by noticeably weaker ethanol demand while soybean prices also were negatively affected by weak export numbers. Wheat prices moved lower on the week but off of intraweek lows. Cheap Russian exports and a stronger dollar helped move prices lower while adverse weather (artic storm) forecasted for Ukraine and Russia helped floor losses.
Coming Up This Week
Light but important data-week with CPI Thursday and PPI 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.
