July 5, 2019

  • The dollar rallies as a rate cut may not be a no-brainer
  • Gold and precious metals prices decline sans palladium
  • Bitcoin and digital currencies fall
  • Crude oil edges lower after the OPEC meeting while natural gas recovers
  • Stocks post gains, but more than a few potholes stand in the way of higher highs

 

The story of this week:

The Fed- Will they, or won’t they?

I hope everyone had a wonderful fourth of July holiday. The beginning of the third quarter of 2019 prompts the question if the optimism over a rate cut at the July FOMC meeting at the end of this month will fade. On Friday, July 5, while most market participants were enjoying a long holiday weekend, the jobs report shed more than a little doubt on the next move by the US central bank. The US economy added 224,000 jobs in June, which was more than the market had expected. The unemployment rate at 3.7%, close to the lowest in fifty years, could give the central bank a reason to pause before acting to cut the Fed Funds rate by 25 basis points later this month. Additionally, it increases doubt when it comes to the Fed’s conviction to push the Fed Funds rate 50 basis points lower by the end of 2019.

The dollar index staged a significant comeback over the first week of Q3.

Source: CQG

As the weekly chart highlights, after closing the second quarter at 95.725 and trading to a low at 95.365 in the aftermath of the June FOMC meeting, the index rose to just over the 97 level on Friday and settled at 96.89. The recent price action in the dollar index now looks like another higher low in the greenback.

A higher dollar could weigh on commodities prices, as would disappointment if the Fed does not cut interest rates. Gold fell on the week and settled at just over $1400 per ounce. Oil and copper also posted losses for the first week of the new quarter. The latest employment data will turn the focus on next week’s inflation reports as we will hear the results for PPI and CPI. The Fed will be weighing all of this data when it comes to its next move on monetary policy.

While trade remains the leading issue, and other factors face markets, the Fed is likely to lead the way when it comes to charting the path of least direction for the dollar and raw material prices for the rest of July.

Highlights in commodities:

  • Gold falls 0.96% on the week as the dollar rises
  • September silver declines 2.76% as the silver-gold ratio rises to a new high on the quarterly chart
  • Platinum falls 3.53% since last week. October platinum was at a $588.70 per ounce discount to August gold futures, which widened since last week
  • Palladium gains 1.73% for the week as the rally continues and pushes palladium over the $1560 per ounce level
  • September copper fell 1.93% on the week on trade and a higher dollar
  • September iron ore futures edge 0.38% lower but remain near the high
  • The BDI explodes 26.87% since June 28 on seasonal factors
  • Rotterdam coal rebounds 10.83% since the end of June
  • September lumber was up 2.35% as the market consolidates below the $400 level
  • August NYMEX crude oil moves 1.64% lower since June 28 in the aftermath of the OPEC meeting where the oil ministers leave the production quotas intact into 2020. The API and EIA reported bullish inventory data, which likely prevented further declines
  • September Brent crude oil declines 0.74% since the previous report. September Brent was at $64.19 per barrel on Friday as the Brent outperformed WTI crude oil
  • The premium for Brent over WTI in September closes Friday at the $6.60 level up 40 cents since June 28 in post-OPEC meeting price action
  • August gasoline moves 1.73% higher while August heating oil futures fall 1.77% over the past week as the prices reflect seasonal factors
  • The gasoline crack spread in August was 10% higher while the August heating oil crack moved down 2.77% since June 28
  • Natural gas recovers 4.77% on August futures closing the week at $2.418 per MMBtu. The EIA reported an injection of 89 bcf into storage on Wednesday for the week ending on June 28
  • August ethanol rises 0.26% on the week
  • November soybeans fall 3.09% since last week
  • December corn rises 2.49% on the week
  • CBOT September wheat moves 2.32% lower since last week. September KCBT wheat trading at a 69.75 cents discount under CBOT wheat. The discount remains far from the historical norm with KCBT wheat trailing and the spread widened by 4.0 cents over the past week
  • October sugar falls 2.06% since June 28 and closes at 12.36 cents per pound
  • September coffee rises 1.51% on the week
  • September cocoa moves 1.57% higher since last week
  • December cotton gains 1.12% for the first week of Q3
  • September FCOJ futures moved 1.97% lower, as the price closes at $1.02 per pound
  • August live cattle moves 2.54% higher since last week
  • August feeder cattle gain 1.44% since June 28
  • August lean hog futures recover by 1.38% over the past week
  • The September dollar index futures contract recovers by 1.28% on the week on optimism over trade and Friday’s employment report
  • September Long-Bond futures trading at 155-05 down 0-12 after making a new high at 157-02 and putting in a bearish reversal on Friday after the jobs data
  • The Dow Jones Industrial Average closes at 26,922 on Friday, July 5, up 322 points from June 28. The S&P 500 rises by 1.65% since last week. The VIX falls 1.80 was trading at around 13.28 on Friday
  • Bitcoin was trading at $10,939.89 on Friday down $1,326.92 or 10.82% since June 28.
  • Ethereum was trading at $286.59 on Friday, down 7.44% since the last report

 

Price Changes for the week:

DBC closes at $15.64 per share, down 9.0 cents per share since June 28

 Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.61 billion and trades an average daily volume of 883,040 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. Total average volume declined over the past week in a sign of falling interest 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.