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  • Stocks bounce as corrections continue to be buying opportunities
  • Most commodities move lower as the dollar index rises- Copper falls below $2.50 and recovers while the Baltic Dry Index posts a double-digit percentage loss again
  • NYMEX crude oil probes below $50 per barrel and closes the week just above that level- Product prices outperform crude oil while natural gas remains below $1.90 per MMBtu
  • Cryptocurrencies rise as Bitcoin flirts with the $10,000 level
  • Cocoa makes a new high and lean hog futures recover- WASDE on February 11

 

The story of this week:

 

Temporary Calm In Markets- More Volatility Ahead

 

It was a busy week for the news cycle. Political junkies had to wait until Thursday for the results of Monday’s Iowa caucus where Pete Buttigieg and Bernie Sanders wound up in a virtue tie as they split the largest number of delegates. The frontrunner in the race of the nomination among Democrats, former Vice President Joe Biden, came in fourth place behind Elizabeth Warren. Next week, New Hampshire will go to the polls, and Bernie Sanders is the favorite to chalk up another victory. No candidate has emerged as a leader, which could open the door for billionaire Michael Bloomberg who will begin competing on Super Tuesday in March.

On Tuesday, the State of the Union address provided more than a few reasons for pundits and talking heads to comment as President Trump refused to shake the hand of the Speaker of the House of Representatives before the speech, and she ripped up her copy after he finished. On Wednesday, the US Senate acquitted the President on the two articles of impeachment along party lines with only one exception. Utah Senator Mitt Romney voted guilty on one of the articles depriving the Presidents of unanimity from his party.

When it comes to markets, stocks moved higher to new peaks despite the ongoing fears over Coronavirus. China cut tariffs on US goods, which lit a bullish fuse under the stock market during the week. However, on Friday, stocks backed off.

Crude oil probed below the $50 per barrel level, and copper briefly fell under $2.50 per pound before both markets recovered by the end of the week to above those levels. OPEC is considering further production cuts, but the Russians have yet to sign on to reduce their output. The impact of the virus could continue to cause volatility in markets as the number of confirmed cases continues to rise.

On Friday, the jobs data was bullish for the US economy as employment rose by 225,000 in January, exceeding market expectations of a rise of 158,000 jobs. The unemployment rate edged higher to 3.6% as more people entered the labor force in search of work. Average hourly earnings rose 3.1% from the level last year, which was higher than market expectations at 3%. However, manufacturing jobs sunk, as did the retail sector. Moreover, economic reports from Germany were the weakest in years. Global economic weakness could eventually take a toll on the US economy.

As the number of cases of Coronavirus rose to over 31,000, stocks fell at the end of the week along with copper and crude oil. Gold was trading at the $1575 level on Friday on the April futures contract after hitting a low of $1551.10 per ounce on February 5.

The temporary calm in markets may not last long as the spread of the virus could cause a return of risk-off conditions in markets across all asset classes. Meanwhile, the dollar index continued to post gains last week as it climbed above the 98.50 level for the first time since October. Critical technical resistance in the index is at the September 2019 peak at 99.33. The rising dollar has weighed on the prices of many commodities. Approach all markets with caution as volatility could return in the blink of an eye over the coming week.

Highlights in commodities:

  • April gold falls 0.91% and settled at $1573.40 per ounce as gold recovers from deeper losses early in the week
  • March silver falls 1.78% as the precious metal settled at $17.692 per ounce on February 7
  • Platinum posts a 0.76% gain on the week. April platinum was at a $604.20 per ounce discount to April gold futures, which narrowed since last week
  • March palladium fell 0.65% for the week and settled at $2210.20 per ounce
  • March copper rebounded 1.43% after the red metal probed below the $2.50 per pound level
  • April iron ore futures moved 0.10% lower on the week
  • The BDI fell another 13.45% since January 31 to the 431 level as the Chinese economy suffers over the Coronavirus
  • April Rotterdam coal fell 1.30% since last week
  • March lumber moved 1.08% higher since January 31 as the price was at the $440.20 per 1,000 board feet level
  • March NYMEX crude oil fell 2.40% lower since January 31 and closed the week just over the $50 per barrel level
  • April Brent crude oil fell 3.78% since the previous report as Brent underperformed NYMEX crude oil
  • The premium for Brent over WTI in April closed Friday at the $3.91 level as the spread moved $1.01 lower since last week
  • March gasoline rose 1.32% while March heating oil futures posted a 0.92% gain over the past week
  • The gasoline crack spread in March was 19.65% higher while the March heating oil crack moved 11.10% higher since January 31 as products outperformed crude oil
  • Natural gas rose just 0.92% on March futures closing the week at $1.858 per MMBtu after trading to a new low of $1.804. The EIA reported a withdrawal of 137 bcf from storage on Thursday for the week ending on January 31
  • March ethanol fell 1.26% on the week
  • March soybeans rose 1.09% since last week as the USDA will release the February WASDE report on Tuesday, February 11 at noon EST
  • March corn moved 0.59% higher on the week
  • CBOT March wheat was 0.90% higher since last week. March KCBT wheat trading at an 86.25 cents discount under March CBOT wheat up 2.00 cents since January 24. The discount moved marginally towards the historical norm since last week
  • March sugar rose 2.12% since January 31 and put in a new high at 15.13 cents
  • March coffee continued to correct and fell 4.19% since last week
  • March cocoa rose 4.43% since January 31 and rose to a new high of $2935 per ton on the March contract, the highest price since September 2016
  • March cotton rose just 0.37% since last week as the fiber futures were at the 67.75 cents per pound level
  • March FCOJ futures fell 1.15% since the previous report to just under 95 cents per pound level
  • April live cattle rose only 0.10% since last week
  • March feeder cattle were 0.09% higher since January 31
  • April lean hog futures rose 7.55% over the past week after a more than 15% decline last week
  • The March dollar index futures contract rose 1.40% on the week
  • March Long-Bond futures trading at 162-16 down 1-10 for the week on the back of gains in stocks
  • The Dow Jones Industrial Average closes at 29,103 on Friday, February 7, up 847 points from January 31. The S&P 500 rose 3.17% since last week. The VIX was trading at around 15.47 on Friday down 3.37 on the week on the back of higher stock prices
  • Bitcoin was trading at $9,733.62 on Friday up $384.13 or 4.11% since January 31
  • Ethereum was trading at $218.93 on Friday, up 21.12% since the last report

 

Price Changes for the week:

DBC closes at $14.53 per share, down five cents since January 31

 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 1,359,003 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 fell as the price of the ETF posted a loss. The rise in volume could be a sign that market participants were buying the dip in the commodities asset class.

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.   

                                                         

 

 

 

 

 

 

 

 

 

Andy Hecht

Author

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