- The stock market continues to rally- Bonds and the dollar index decline
- Precious metals correct lower with across the board losses- Copper moves towards the $2.60 per pound level
- Energy commodities posted across the board gains, except for natural gas which edged lower
- Most agricultural commodities moved to the upside- The USDA will release its June WASDE report next Thursday, on June 11
- The dollar index continued to decline, while Bitcoin and digital currencies moved higher
The story of this week:
Benign Neglect in The Stock Market- Commodities Should Go Higher
Friday’s employment data showed that the unemployment rate fell to 13.3%, as 2.5 million people returned to work lit another bullish fire under the stock market. OPEC’s decision to extend production cuts sent the price of the energy commodity higher with nearby WTI and Brent futures trading on either side of $40 per barrel at the end of last week. In a sign that the US economy is beginning to reopen, the bells on the slot machines on the Las Vegas strip were ringing again late last week.
As of Friday, June 5, COVID-19 claimed almost 395,000 lives and infected over 6.75 million people worldwide. The number of unreported fatalities and cases makes the numbers far higher. 28% of the reported deaths have been in the United States. The coma in the economy from March through early June took a bite out of earnings, tax flows, and GDP. While the employment report last Friday was a reason for celebration, many of the over forty million people who applied for first-time unemployment benefits since March will not be returning to work. As companies learn to do more with less, and many workers will fall through the cracks.
The US government has pulled out all of the stops to address the situation over the past months. The Treasury borrowed $3 trillion, more than five times the amount in 2008. The Fed’s balance sheet has swelled to over $7 trillion. If not another penny in stimulus comes into the market, the monetary and fiscal stimulus is inflationary seeds that will continue to impact markets over the coming years. Just as commodity prices rose from 2008 through 2012, a similar trend beyond 2020 is likely.
Meanwhile, the events of the past two weeks after the death of George Floyd caused by police brutality has ripped another band-aid off race relations in the US. Protests, demonstrations, and the worst widespread civil unrest since the 1960s went unnoticed by the stock market. The situation calmed by the end of last week. The benign neglect in markets puts a spotlight on the race issue along with the gulf between the wealthy in the US and those who live paycheck-to-paycheck or are unemployed. Companies may make significant comebacks, and their share prices may continue to rise, but the COVID-19 experience is creating an even wider gulf between rich and poor in the United States.
With the Presidential election on the horizon in November, the summer of 2020 could look a lot like the summer of 1968 across the United States.
Markets reflect the political and economic landscapes. At times, there can be disconnects. The stimulus is bullish for commodities prices, and volatility is likely to return to the stock market. Just like we should not ignore the ongoing threat of coronavirus, caution in markets is advisable. The NASDAQ rose to a new record high on Friday, June 5.
Highlights in commodities:
- August gold declined by 3.92% on the week, settling at $1683.00 per ounce as the stock market explodes to the upside
- July silver fell 5.51% for the week after recent gains as the precious metal settled at $17.479 per ounce on June 5
- July platinum fell 5.05% on the week. July platinum was at a $852.60 per ounce discount to August gold futures, which narrowed since last week
- September palladium fell 1.03% and settled at $1,952.60 per ounce. Rhodium fell $900 per ounce to a midpoint of $6,800 over the past week
- July copper was 5.36% higher to the $2.5555 level since May 29
- July iron ore futures moved 0.46% higher over the past week
- The BDI rose 29.24% since May 29 to the 632 level
- July Rotterdam coal moved 9.31% higher since last week
- July lumber was 0.46% higher since May 29 and was at the $368.80 per 1,000 board feet level
- July NYMEX crude oil gained 11.44%. The July contract closed the week at $39.55 per barrel
- August Brent crude oil rose 11.78% since last week to $42.33 per barrel
- The premium for Brent over WTI in August closed Friday at the $2.53 level as the spread was up $0.50 per barrel since last week
- July gasoline rose 12.53% while July heating oil futures posted an 11.00% gain over the past week
- The gasoline crack spread in July was 16.45% higher since last week. July heating oil crack moved 9.31% higher since May 29 as gasoline and heating oil outperformed crude oil
- Natural gas fell 3.62% on the July futures contract closing the week at $1.782 per MMBtu. The EIA reported an injection of 102 bcf into storage on Thursday for the week ending on May 29
- July ethanol rose 9.80% on the week on strength in energy commodities
- July soybeans moved 3.21% higher since last week – WASDE on Thursday, June 11
- July corn was 1.69% higher on the week
- CBOT July wheat fell 1.06% since last week to over the $5.20 per bushel level. July KCBT wheat trading at a 54.00 cents discount under July CBOT wheat as the discount away from the historical norm by 3.75 cents per bushel since last week
- July sugar rose 10.17% since May 29 and closed at 12.02 cents per pound on strength in energy prices
- July coffee posted a 2.70% gain since last week, but the price remained below the $1 per pound level
- July cocoa fell 2.28% since May 29
- July cotton rose 7.29% since last week as the fiber futures were at the 61.79 cents per pound level
- July FCOJ futures increased by 4.12% since the previous report to $1.2755 per pound
- August live cattle moved 3.56% lower since last week
- August feeder cattle fell 0.87% since May 29
- August lean hog futures were 5.15% lower over the past week
- The June dollar index futures contract fell 1.44% on the week to 96.922
- September Long-Bond futures were trading at 172-30 down 5-09 for the week
- The Dow Jones Industrial Average closes at 27,111 on Friday, June 5 up 1728 points from May 29. The S&P 500 rose 4.91% since last week. The VIX was trading at around 24.14 on Friday down 3.37 on the week as stocks continued to move higher
- Bitcoin was trading at $9,736.91 on Friday up $312.84 or 3.32% since May 29
- Ethereum was trading at $243.14 on Friday, up 10.65% since the last report
Price Changes for the week:
DBC closes at $12.30 per share, up 52 cents since May 15
DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $818.32 million, and trades an average daily volume of 1,586,401 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume fell, net assets rose over the past week, and the price of the ETF moved higher.
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.