• Coronavirus causes risk-off conditions and the highest volatility since the 2008 global financial crisis
  • Crude oil fell to its lowest level since February 2016 when the price traded to $27.34 on nearby NYMEX futures before recovering
  • Gold makes a new high but falls by $200 from the peak in risk-off conditions as all other precious metals tank
  • Copper declined along with most industrial commodities
  • Coronavirus overshadows the March WASDE report as agricultural commodity prices decline in the risk-off environment


The story of this week:


Carnage In Markets- Be Careful!


Over the past week, we witnessed the worst market conditions since the 2008 global financial crisis. However, this time is very different. Rather than recap all of the carnage in markets across all asset classes, suffice to say that market conditions are dangerous and volatile. The situation is likely to continue.

In 2008, and most other risk-off periods, massive price corrections were the result of economic and financial events. The mortgage-backed securities and housing meltdown in 2008, together with a sovereign debt crisis in Europe, creates a potent period of selling in markets. Perhaps the best comparison comes from the market conditions that followed 9/11, where fears hit home as the world encountered a faceless group of enemies at first. This time, the enemy is a virus that threatened all people around the world. The disagreement between Saudi Arabia and Russia that is flooding the world with crude oil at a time when markets were highly vulnerable only exacerbated the risk-off conditions over the past week. OPEC met demand destruction with a massive increase in supplies, likely to undermine the US leadership position in output. Many energy companies in the US are likely to face bankruptcy given the low prices, which will make it more than a challenge to meet debt servicing obligations.

On Friday afternoon, March 13, before the stock market closed, US President Donald Trump declared a state of national emergency in the United States to unleash $50 billion in funding for a response to Coronavirus. Stocks moved higher as the President and medical officials presented a system for testing and keeping the number of cases as low as possible. The President also had leading companies involved in the testing, treatment, and supply chain make comments on their coordinated approach to addressing the crisis. The President waved interest on student loans and authorized Energy Department purchases of crude oil for the Strategic Petroleum Reserve, which immediately lifted the price of the energy commodity. The market’s reaction to the Rose Garden presentation was positive and far more supportive of markets than the Oval Office address earlier in the week. The S&P 500, DJIA, and NASDAQ were all between 9% and 10% higher on Friday, which softened the blow of risk-off on a week-on-week basis.

The bottom line on markets is that risk-off sent markets reeling. As market participants moved to the sidelines, products where market participants were on the long side, cascaded lower. Where there was an overabundance of shorts, like in natural gas, prices moved higher. As the risk-off conditions continued, even markets that are traditional flight to quality havens, like US government bonds and gold, fell sharply by the end of the week. The bottom line is that there are no short-term answers to the current situation. The world is facing the worst health crisis since the 1918 Spanish flu, which claimed countless victims. The answers will come from scientists and health professionals. While a vaccine is likely more than one year away, treatments that save lives could arrive sooner, hopefully. We are facing a period where life will change, just as it did after 9/11. Sadly, the current situation is affecting far more people.

Keep stops tight, be cautious when taking positions home overnight and take care of yourselves and your families and friends, particularly the elderly and those with conditions that put them in the high-risk category. Markets are secondary to health concerns in the current environment.

Highlights in commodities:

  • April gold falls 9.31% on the week and settles at $1516.70 per ounce, but it is the best-performing metal of the four that trade on the NYMEX and COMEX exchanges
  • May silver plunged 16.01% as the precious metal settled at $14.50 per ounce on March 13
  • Platinum was a falling knife down 17.01% on the week to the lowest price since 2003. April platinum was at a $772.80 per ounce discount to April gold futures, which marginally narrowed since last week
  • June palladium crashes by 36.90% for the week and settled at $1,539.20 per ounce as the bubble popped
  • May copper was 3.77% lower to the $2.4640 level since March 6
  • April iron ore futures moved 2.50% higher over the past week
  • The BDI rebounded rose 5.68% since March 6 to the 633 level on seasonal factors
  • April Rotterdam coal rose 0.41% since last week
  • May lumber plunged 10.61% lower since March 6 as the price was at the $343.00 per 1,000 board feet level
  • April NYMEX crude oil was 23.13% lower on the week after trading to a low of $27.34 and closed the week at $31.73 per barrel. Crude oil was over the $33 level after the close when the President announced purchases for the SPR
  • May Brent crude oil fell 26.18% after falling to a low of $31.25 per barrel. Brent underperformed NYMEX crude oil over the past week as the price declined and Saudi Arabia flooded the world with the energy commodity
  • The premium for Brent over WTI in May closed Friday at the $1.27 level as the spread moved $2.44 lower since last week
  • April gasoline tanked 35.26% while April heating oil futures posted a 17.89% loss over the past week
  • The gasoline crack spread in April was 66.53% lower while the April heating oil crack moved 7.92% lower since March 6 on the back of a lack of demand for fuels because of Coronavirus
  • Natural gas rose 9.43% on April futures closing the week at $1.869 per MMBtu after risk-off pushes the price to just under $2. Natural gas traded to a low of $1.61 on March 9, which was the lowest price since 1998. The EIA reported a withdrawal of 48 bcf from storage on Thursday for the week ending on March 6
  • April ethanol fell 3.64% on the week
  • May soybeans fell 4.77% since last week in post March WASDE trading
  • May corn moved 2.73% lower on the week
  • CBOT May wheat was 1.89% lower since last week. May KCBT wheat trading at a 74.50 cents discount under May CBOT wheat as the discount moved 5.00 cents away from the historical norm since last week
  • May sugar plunged 10.14% since March 6 and closed at 11.70 cents per pound
  • May coffee posted a 0.61% loss since last week
  • May cocoa declined 5.31% since March 6
  • May cotton fell 3.66% since last week as the fiber futures were at the 60.49 cents per pound level
  • May FCOJ futures rose 2.07% since the previous report to 98.70 cents per pound
  • April live cattle fell 9.62% since last week
  • April feeder cattle were 13.42% lower since March 6
  • April lean hog futures plunged 14.49% over the past week
  • The March dollar index futures contract rose 3.07% on the week to just under the 99 level
  • June Long-Bond futures were trading at 175-22 down 2-16 for the week on the back of risk-off fears over Coronavirus after trading to a high of 191-22 during the week
  • The Dow Jones Industrial Average closes at 23,186 on Friday, March 13, down 2,679 points from March 6 after a wild and volatile week. The S&P 500 fell 8.80% since last week. The VIX was trading at around 57.83 on Friday up 15.89 on the week after trading to a new high of 77.57, the highest level since November 2008
  • Bitcoin was trading at $5,361.82 on Friday down $3,749.21 or 41.15% since March 6
  • Ethereum was trading at $127.68 on Friday, down 46.58% since the last report


Price Changes for the week:

DBC closes at $12.11 per share, down $1.25 since March 6

 Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.09 billion and trades an average daily volume of 1,598,850 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 remained steady as the price of the ETF 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.