• A new decade begins
  • The spotlight will be on the Middle East and Iran after the January 2 US airstrike
  • Oil rallies, natural gas moves lower
  • Gold and precious metals rally in the new year
  • Bitcoin recovers, stocks could face risk-off conditions at record levels

The story of this week:

 

Action Early In 2020

 

Last week I wrote, “As we head into 2020, many of the issues that faced markets throughout 2019 will continue to cause volatility.” Just two days into the new decade, we got a taste of the kind of volatility that could be heading our way throughout 2020 and beyond. On January 2, US airstrikes killed Iran’s most senior military commander at the Baghdad airport. Major General Qassim Soleimani was the number two leader in Iran, second only to Ayatollah Ali Khamenei, who promised retaliation in the aftermath of the US move.

Crude oil moved higher in the aftermath of the death of the senior Iranian leader of the nation’s revolutionary guard.

Source: CQG

The price of the active month February NYMEX crude oil futures contract rose from $61.18 on January 2 to a high of $64.09 per barrel on Friday. The February futures settled at $63.05 on January 3.

Source: CQG

The chart of the Brent versus WTI spread in March shows that the Brent premium moved higher from $5.30 on January 2 to a high of $5.88 per barrel last Friday. The Middle East is home to more than half the world’s oil reserves, and Brent is the pricing benchmark for petroleum in the region.

Source: Barchart

Active month March Brent futures moved from a closing price of $66.25 per barrel on January 2 to a high of $69.48 on January 3 and were trading above the $68.60 level late in the day. After the events of January 2, few market participants wanted to go home short crude oil over the first weekend of 2020.

Source: CQG

The E-Mini S&P 500 futures contract that had been making higher highs and reached a new all-time peak on January 2 turned lower on January 3 in the aftermath of the event in Iraq. However, stocks came back from the lows by the end of the session. A risk-off period could hit the market as the stocks remain near record territory.

Finally, gold took off on the upside in response to a rise in the hostilities between the US and Iran.

Source: CQG

The weekly chart shows that gold traded to a high of $1556.60 on January 3, just $3.20 below the early September peak at $1559.80 and the first level of technical resistance at the highest price since 2013.

Fasten your seatbelts, the event in the Middle East on January 2 is likely to lead to more incidents and lots of volatility in markets across all asset classes over the coming weeks and months.

 

 

Highlights in commodities:

  • February gold rises 2.26% and settled at $1552.40 per ounce
  • March silver rises 1.16% on the week as the volatile precious metal settled at $18.151 per ounce
  • Platinum posts a 3.90% gain on the week. April platinum was at a $562.10 per ounce discount to February gold futures, which narrowed marginally since last week
  • March palladium moved 3.96% higher for the week and settled at $1955.70 per ounce
  • March copper moved 1.50% lower as the red metal was just below the $2.79 level at the end of last week
  • February iron ore futures moved 3.28% higher on the week
  • The BDI fell 10.46% since December 27 to the 976 level
  • February Rotterdam coal fell 1.28% since last week
  • March lumber moved 0.07% lower since December 27 as the price was just below the $428 per 1,000 board feet level
  • February NYMEX crude oil moved 2.15% higher since December 27
  • March Brent crude oil moved 2.69% higher since the previous report as Brent outperformed NYMEX crude oil on the back of increased tensions between the US and Iran
  • The premium for Brent over WTI in March closes Friday at the $5.85 level up 49 cents since last week
  • February gasoline moved 0.23% higher while February heating oil futures rose 0.46% over the past week
  • The gasoline crack spread in February was 8.74% lower while the February heating oil crack moved 4.41% lower since December 27 as products underperformed crude oil
  • Natural gas fell 4.53% on February futures closing the week at $2.130 per MMBtu. The EIA reported a withdrawal of 58 bcf from storage on Friday for the week ending on December 27
  • February ethanol moved 4.30% lower on the week
  • March soybeans fell 0.08% since last week
  • March corn declined 0.90% on the week
  • CBOT March wheat fell 0.31% since last week. March KCBT wheat trading at a 79.50 cents discount under March CBOT wheat up 3.00 cents since December 27. The discount moved away from the historical norm since last week
  • March sugar declined 1.70% since December 27
  • March coffee corrected 4.64% lower on the week
  • March cocoa rose 0.88% since December 27
  • March cotton moved 0.41% higher since last week as the fiber futures grind towards the 70 cents level
  • March FCOJ futures fell 1.05% since the previous report to below the $1 per pound level
  • February live cattle fell 1.56% since last week
  • March feeder cattle were 1.47% lower since December 27
  • February lean hog futures fell 2.87% over the past week with a limit down move on January 3
  • The March dollar index futures contract fell 0.03% on the week
  • March Long-Bond futures trading at 158-10 up 1-16 for the week
  • The Dow Jones Industrial Average closes at 28,635 on Friday, January 3, down 10 points from December 27. The S&P 500 declined 0.16% since last week. The VIX was trading at around 14.06 on Friday up 0.65 on the week as risk-off over the Middle East lifted the volatility index
  • Bitcoin was trading at $7,338.14 on Friday up only $59.56 or 0.82% since December 27- Bitcoin rallied back from under $7000 during the week
  • Ethereum was trading at $133.41 on Friday, up 4.70% since the last report

 

Price Changes for the week:

DBC closes at $16.16 per share, up eight cents since December 27

 Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.34 billion and trades an average daily volume of 1,066,474 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 while the net assets remained steady, and the price of the ETF was posted a marginal gain.

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.