• Stocks plunge
  • Bonds explode- Expect a rate cut from the Fed
  • Precious metals ugly- Silver and platinum post double-digit percentage losses
  • Agricultural commodities lower- Coffee is the lone winner on the week
  • Coronavirus and feeling the “Bern” creates risk-off conditions

You have to go back over a decade to the global financial crisis for a period like markets experienced over the past week. Price carnage across all asset classes shaved a huge chunk of value off stocks, commodities, and all asset classes. Bonds exploded to the upside as investors and traders sought safety.

Source: CQG

The weekly chart of the E-Mini S&P 500 contract says it all. It was less than two weeks ago that the US stock market was at a record high level on February 20. All of the leading stock markets tanked over the past week.

Source: CQG

Crude oil was moving towards a test of the 2018 low at $42.36 on Friday as the price fell to a low of $43.85 per barrel on the nearby NYMEX futures contract.

Source: CQG

Gold initially attracted safe harbor buying on February 24, taking the price of nearby futures to a new peak of $1686.60. However, the environment of selling any asset took the price over $100 per ounce lower by the end of the week. Silver did even worse, falling from $18.92 on Monday to a low of below $16.40 per ounce by Friday. Platinum fell to below the $870 level, copper was near $2.50 per pound, and most commodities and other assets saw their prices evaporate.

The press is spending lots of time attributing the risk-off behavior in markets to the spread of the Coronavirus. On Monday, cases in South Korea, Iran, and Italy increased the odds of a pandemic. While Coronavirus will weigh on the global economy, the selling in markets commenced on Monday, February 24, after progressive candidate Senator Bernie Sanders won the Nevada caucus to put him in a clear leadership position in the contest to challenge President Trump in the November election. Senator Sanders is a self-proclaimed Democratic Socialist running for the presidency in the world’s leading capitalist nation. While Coronavirus is a significant factor weighing on markets, the potential for a dramatic shift in US policy under a Sanders Administration could be sending fear and uncertainty through markets. Wall Street is not a fan of the Vermont Senator, and the feeling is more than mutual.

Keep a close eye on the South Carolina primary this Saturday and the all-important Super Tuesday contests early next week. If Senator Sanders continues to be in the lead on Wednesday morning, the market’s reaction could be telling. I believe that markets could be “feeling the Bern” over the past week, exacerbating the volatility.

Meanwhile, be extremely cautious in markets over the coming days and weeks. Volatility is likely to make trading and investing conditions more than a challenge. Keep stops tight and look for bargains. There is nothing wrong with moving to the sidelines until the dust settles. The Fed is likely to take action in the current environment. I expect a rate cut and perhaps a return to quantitative easing.

Highlights in commodities:

 

  • April gold falls 4.98% on the week, puts in a bearish reversal on the weekly chart and settles at $1566.70 per ounce
  • May silver implodes 11.24% as the precious metal put in a bearish reversal on the weekly chart and settled at $16.457 per ounce on February 28
  • Platinum plunges 11.41% on the week. April platinum was at a $702 per ounce discount to April gold futures, which widened to a new record high since last week
  • June palladium falls 3.94% for the week and settled at $2508.80 per ounce after trading to a new high of $2815.50 during the week
  • May copper lost 2.70% to $2.54 level
  • April iron ore futures moved 8.80% lower on risk-off action
  • The BDI rebounded 10.21% since February 21 to the 529 level after months of declines over trade and Coronavirus
  • April Rotterdam coal fell 2.68% since last week in sympathy with crude oil and natural gas
  • May lumber moved 13.29% lower since February 21 as the price was at the $410.90 per 1,000 board feet level
  • April NYMEX crude oil plunged 16.15% since February 21 and closed the week at $44.76 per barrel
  • May Brent crude oil fell 14.41% since the previous report as Brent outperformed NYMEX crude oil
  • The premium for Brent over WTI in May closed Friday at the $4.65 level as the spread moved lower since last week
  • April gasoline fell 15.81% while April heating oil futures posted a 13.93% loss over the past week
  • The gasoline crack spread in April was 15.30% lower while the April heating oil crack moved 0.64% lower since February 21
  • Natural gas fell 12.06% on April futures closing the week at $1.684 per MMBtu after trading to a low of $1.642. The EIA reported a withdrawal of 143 bcf from storage on Thursday for the week ending on February 21
  • April ethanol fell 5.51% on the week
  • May soybeans fell 0.39% since last week
  • May corn moved 3.16% lower on the week
  • CBOT May wheat was 5.02% lower since last week. May KCBT wheat trading at a 71.75 cents discount under May CBOT wheat as the discount moved towards the historical norm since last week
  • May sugar fell 6.48% since February 21 and closed at just over 14 cents per pound
  • May coffee was the only commodity that posted a gain and was 1.00% higher since last week
  • May cocoa declined 6.01% since February 21
  • May cotton plunged 10.88% since last week as the fiber futures were at the 61.49 cents per pound level
  • May FCOJ futures fell 4.86% since the previous report to just under 96 cents per pound
  • April live cattle fell 9.03% since last week
  • April feeder cattle were 7.62% lower since February 21
  • April lean hog futures dropped 7.09% over the past week
  • The March dollar index futures contract declined 1.12% on the week to just over the 98 level
  • June Long-Bond futures were trading at 169-19 up 5-18 for the week on the back of fears over Coronavirus
  • The Dow Jones Industrial Average closes at 25,409 on Friday, February 28, down 3,583 points from February 21. The S&P 500 fell 11.49% since last week. The VIX was trading at around 40.11 on Friday up 23.03 on the week to the highest level since February 2018
  • Bitcoin was trading at $8,629.39 on Friday down $1,023.18 or 10.60% since February 21
  • Ethereum was trading at $224.87 on Friday, down 14.45% since the last report

 

Price Changes for the week:

DBC closes at $13.61 per share, down $1.17 since February 21

 Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.27 billion and trades an average daily volume of 1,346,039 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume rose over the past week and net assets remained the same as the price of the ETF posted a loss.

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.