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The story of this week:

 

The End Of Any Ugly Month In The Commodities Asset Class

 

The signing of an agreement that de-escalated the trade war between the US and China on July 15 caused brief optimism in markets. However, the outbreak of Coronavirus is the newest issue weighing on the Chinese economy. On Friday, January 31, the medical community raised the warnings on the virus by declaring it as a global health emergency. Science is now having a significant effect on global economics. Since China is the world’s most populous nation with the second-leading economy, it is the demand side of the fundamental equation for commodity demand. Today, the old saying when China comes down with an economic cold, the rest of the world gets the financial flu, is a good way of looking at the current situation. The Coronavirus has rippled through some of the leading commodity markets like a tsunami over the past weeks, with crude oil and copper reaching new lows on the final trading session of January.

Source: CQG

The monthly chart of NYMEX crude oil highlights that the energy commodity put in a bearish reversal pattern in January, which could lead to follow-through selling in February. February has been a month where the crude oil futures market reached a bottom in 2016 when the price fell to a low of $26.05 per barrel. We could see the price of oil challenge the $50 level over the coming days and weeks. Nearby March futures on NYMEX settled at $51.56 per barrel on January 31.

Source: CQG

Copper, the red metal that is a barometer for the health and wellbeing of both the Chinese and global economies, also put in a bearish reversal on the monthly chart in January. Nearby March COMEX copper futures settled at $2.5170 per pound on the final day of January. From the highs in January to the settlement prices on January 31, crude oil and copper fell by 21.5% and 12.8%, respectively.

The US stock market fell sharply on Friday, with an over 2% loss in the DJIA and significant declines in the other leading indices. US 30-Year bonds rallied along with gold, which was above the $1590 level as traders and investors sought shelter in safe assets. The markets will continue to move on the back of the developments surrounding Coronavirus next week. The VIX was at just under the 19 level on Friday, in a sign that fear and uncertainty have replaced optimism in markets.

Keep those stops tight and take profits when they are on the table. Market volatility is a nightmare for static investors, but it creates a paradise for dynamic traders with their fingers on the pulse of markets.

 

Highlights in commodities:

 

  • April gold rises 0.65% and settled at $1587.90 per ounce
  • March silver falls 0.56% after a volatile week as the precious metal settled at $18.012 per ounce on January 31 after recovering from a low of $17.28
  • Platinum posts a 4.82% loss on the week. April platinum was at a $626.00 per ounce discount to April gold futures, which widened significantly since last week
  • March palladium corrected 3.95% lower for the week and settled at $2224.70 per ounce
  • March copper cascaded 6.22% as the red metal slipped to the $2.50 per pound level after twelve consecutive losing sessions
  • April iron ore futures moved 8.49% lower on the week
  • The BDI fell another 13.54% since January 24 to the 498 level as the Chinese economy ground to a halt
  • April Rotterdam coal fell 2.63% since last week
  • March lumber moved 2.18% higher since January 24 as the price was at the $435.50 per 1,000 board feet level
  • March NYMEX crude oil fell 4.85% lower since January 24 and put in a bearish reversal on the monthly chart
  • March Brent crude oil rolled to April and fell 4.49% since the previous report as Brent underperformed NYMEX crude oil
  • The premium for Brent over WTI in April closed Friday at the $4.92 level as the spread moved lower since last week
  • March gasoline fell 1.43% while March heating oil futures declined 6.27% over the past week
  • The gasoline crack spread in March was 15.27% higher while the March heating oil crack moved 10.76% lower since January 24
  • Natural gas fell 1.45% on March futures closing the week at $1.841 per MMBtu after trading to a low of $1.812, the lowest price in January in this century. The EIA reported a withdrawal of 201 bcf from storage on Thursday for the week ending on January 24, which did nothing to support the price of the energy commodity
  • March ethanol fell 0.15% on the week- The USMCA was bullish for the biofuel, but declines in corn and gasoline offset the positive influence of the trade agreement
  • March soybeans declined 3.27% since last week
  • March corn moved 1.55% lower on the week
  • CBOT March wheat fell 3.44% since last week. March KCBT wheat trading at an 88.25 cents discount under March CBOT wheat down 0.75 cents since January 24. The discount moved away from the historical norm since last week
  • March sugar rose 1.53% since January 24
  • March coffee continued to correct and fell 6.81% since last week
  • March cocoa rose 1.61% since January 24
  • March cotton moved 2.74% lower since last week as the fiber futures were at the 67.50 cents per pound level
  • March FCOJ futures rose 0.21% since the previous report to just under 96 cents per pound level
  • April live cattle fell 3.72% since last week
  • March feeder cattle were 3.29% lower since January 24
  • April lean hog futures plunged 15.70% over the past week
  • The March dollar index futures contract fell 0.45% on the week
  • March Long-Bond futures trading at 163-26 up 3-10 for the week
  • The Dow Jones Industrial Average closes at 28,256 on Friday, January 31, down 734 points from January 24. The S&P 500 fell 2.12% since last week. The VIX was trading at around 18.84 on Friday up 4.28 on the week on the back of the virus in China
  • Bitcoin was trading at $9,349.49 on Friday up $843.75 or 9.92% since January 24
  • Ethereum was trading at $180.76 on Friday, up 10.39% since the last report

 

Price Changes for the week:

DBC closes at $14.58 per share, down 53 cents since January 17

 Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.43 billion and trades an average daily volume of 1,228,509 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 as the price of the ETF was 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.   

                                                         

 

 

 

 

 

 

 

 

 

Andy Hecht

Author

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