- Lots of volatility in markets- Trade is the leading issue, but there are plenty of other factors weighing on markets
- Gold and bonds make new highs as capital heads for safe-havens
- Natural gas and crude oil edge higher but remain under pressure
- The August WASDE report sends agricultural commodity prices lower
- Bitcoin and digital currencies post declines on the week
The story of this week:
Wild Times In Markets
The stock market experienced a downdraft between July 26 and August 6.
As the daily chart of the E-Mini S&P 500 futures contract highlights, the move from 3029.50 to a low at 2775.75 or 8.4%. On Friday, the futures contract was around the 2890 level, 114.25 above the low, but still 139.50 below the peak. Last week, the intraday trading ranges were wide as the stock market continues to be concerned over the rising potential for a global recession. Economic data out of China and Europe continue to destabilize markets. The US Fed cited “crosscurrents” from global markets and “uncertainty” over the impact of trade with China as reasoning for its pivot to a more accommodative approach to monetary policy. Even though US economic data remains robust, the US economy does not exist in a vacuum. As rates drop around the world, the US central bank will be under increasing pressure to follow as a runaway dollar in the upside could choke economic growth over the coming months.
Meanwhile, the 2020 Presidential election could also be causing increasing concerns over the economy. If a new administration in 2021 reverses the tax and regulatory reforms put in place by the Trump administration, it could derail US economic growth. The progressive wing of the opposition party has expressed that it will take a more socialistic approach to policy by raising corporate taxes and increasing social programs. The leading candidates from the opposition party are leading in the polls over the incumbent President. Many investors are likely taking a far more conservative approach when it comes to buying stocks these days.
Risk-off periods in markets can cause substantial price corrections across all asset classes. The rising dollar and turbulent stock market have caused the herd to flow to safe-haven assets like gold and US bonds. Both the US 30-Year Treasury bond and gold to rise to new highs over the past week. The continuous gold contract rose to a high at $1531.30 and the long-bond to 166-30. Gold traded to the highest price since 2013 and the bonds since 2016. Gold, a barometer of fear and uncertainty in markets is trading near an all-time high in euros and has already moved to record levels in a host of other currencies. The rise in the price of the yellow metal is significant as it is a global affair.
Meanwhile, the price of copper was below the $2.60 per pound level on Friday, and crude oil was sitting below $55 on the nearby NYMEX futures contract despite the tensions in the Middle East between the US and Iran.
Aside from trade, many factors on the horizon should make volatility over the coming months the norm, rather than the exception. A hard Brexit under Prime Minister Boris Johnson threatens to cause problems for the EU and UK both on a political and economic basis. The EU also faces issues surrounding Italy and other southern countries. While the Chinese economy continues to slow under the weight of the trade war with the US, protests in Hong Kong has caused the Chinese army to move to the border. The threat of a repeat of Tiananmen Square could have far more severe ramifications for China’s economy when it comes to the rest of the world. In the Middle East, the US and Iran remain one incident away from an escalation that could lead to hostilities and military engagement. North Korea is testing missiles as a protest over joint US-South Korean military exercises in the region. More than a handful of problems around the globe could trigger a risk-off period in markets over the coming weeks and months.
The recent volatility in markets could be the beginning of an extended period of wide price variance. While volatility is a nightmare for investors, it creates a paradise of opportunity for nimble traders with their fingers on the pulse of markets. Make sure to approach markets with a plan for risk and reward. Take profits and never be afraid of stopping out of a long or short position. During wild times, the next opportunity is always right around the corner.
Highlights in commodities:
- Gold moves 1.05% higher on the week to a new peak and remained at over the $1520 per ounce level on December futures
- September silver gains 1.13% since last week and remained at over the $17 per ounce level
- Platinum declines 1.42% since last week. October platinum was at a $666 per ounce discount to October gold futures, which widened since last week
- Palladium moved 1.55% higher for the week and settles at just above the $1440 per ounce level
- September copper edged 0.23% higher on the week
- September iron ore futures move 1.26% higher on the week
- The BDI explodes 19.01% higher since August 9 and rises to the 2047 level
- Rotterdam coal moves 0.09% higher since last week
- September lumber recovers 4.33% since last week
- September NYMEX crude oil moves 0.68% higher since August 9
- September Brent crude oil moved only 0.19% higher since the previous report. October Brent was at $58.68 per barrel on Friday as the Brent continued to underperform WTI crude oil
- The premium for Brent over WTI in October closes Friday at the $3.87 level down 33 cents from last week
- September gasoline moves 1.03% lower while September heating oil futures rose 0.27% over the past week as products underperform the energy commodity
- The gasoline crack spread in September was 6.43% lower while the September heating oil crack moved 0.09% to the downside since August 9
- Natural gas recovered 3.82% on September futures closing the week at $2.20 per MMBtu. The EIA reported lower than expected injection of 49 bcf into storage on Wednesday for the week ending on August 9
- September ethanol moves 9.52% lower on the week on weakness in corn
- November soybeans fell 1.35% since last week on post WASDE selling
- December corn falls 8.86% on the week on the back of a bearish WASDE report
- CBOT September wheat moves 5.76% lower since last week. September KCBT wheat trading at a 76.5 cents discount under CBOT wheat. The discount remains far from the historical norm with KCBT wheat trailing but the spread narrowed by 6.0 cents over the past week
- October sugar declined by 1.85% since August 9
- September coffee fell 4.57% lower on the week on weakness in the Brazilian real
- September cocoa declined 3.83% lower since last week
- December cotton recovered by 2.09% since August 9 in post WASDE trading
- September FCOJ futures moved 3.42% lower, as the price closes back under the $1 per pound
- October live cattle moves 8.15% lower since last week as the peak season is coming to an end
- October feeder cattle fall 3.91% higher since August 9
- October lean hog futures plunge 7.43% over the past week
- The September dollar index futures contract rises 0.70% on the week as the greenback index reflects weakness in other world currencies
- September Long-Bond futures trading at 165-12 up 4-09 for the week as market participants seek safe-havens. The long bond traded to a new high at 166-30 on August 15
- The Dow Jones Industrial Average closes at 25,886 on Friday, August 16, down 401 points from August 9. The S&P 500 falls 1.03% since last week. The VIX gains 0.65 and was trading at around 18.62 on Friday after trading at a recent high at 24.81
- Bitcoin was trading at $10,503.42 on Friday down $1,363.06 or 11.49% since August 9
- Ethereum was trading at $186.27 on Friday, down 11.22% since the last report
Price Changes for the week:
DBC closes at $14.83 per share, down 12 cents per share since August 9
DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.57 billion and trades an average daily volume of 1,023,692 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. Total average volume rose over the past week in a sign of increasing interest in the commodities asset class even though the price of the ETF edged lower.
Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.