• Precious metals move mostly higher, but platinum lags
  • Trade pushes copper and base metals lower
  • Crude oil falls on trade but Iran lurks in the background
  • Grains post gains, but soybeans lag
  • New highs in the dollar, but intervention may be pushing the greenback lower as the dollar index falls after Thursday’s new marginal peak- Uncertainty in the UK as the Prime Minister steps aside

The story of this week:

June Could Be A Wild Month In Markets Across All Asset Classes

The price action in markets this month is eerily similar to the beginning of October when stocks and crude oil began a significant corrective period.

Source: CQG

The daily chart of the E-Mini S&P 500 futures contract shows that stocks fell from the first day of October, leading to the lows in late December. Stocks began to fall on May 1 and suffered a downdraft on Thursday, May 23 as the trade dispute between the US and China continued to escalate with new rhetoric from Beijing. Meanwhile, the price of crude oil also corrected sharply lower starting in early October 2018 which the nearby NYMEX futures contract falling from $76.90 to a low at $42.36 in late December. Brent crude oil fell from $86.72 to $49.96 per barrel over the period. After a recovery in the benchmark crude oil futures markets in 2019, they both suffered declined on Thursday, May 23.

Source: CQG

The chart shows a similar pattern developing in crude oil like the one we witnessed in October 2018. The price of nearby NYMEX crude oil futures fell below $60 and Brent futures below $70 per barrel on May 23 as selling took the energy commodity through the support levels like hot knives through butter.

Markets are likely to be extremely nervous over the coming weeks. June could be a wild month. The first issue will be the resignation of British Prime Minister Theresa May last Friday, which will lead to a power struggle within the Tory Party. It is likely that Boris Johnson will emerge as the next Prime Minister. Mr. Johnson resigned from May’s cabinet over a disagreement over Brexit. The former Foreign Secretary favors a hard Brexit which could create problems when it comes to support from a majority of MPs in the British Parliament. It is possible that an election could put Labour leader Jeremy Corbyn in the Prime Minister’s seat. Alternatively, in the latest elections for MPs for the EU, the Brexit party led by Nigel Farage won a decisive victory. Mr. Farage could decide to position his party to put him in the Prime Minister’s position. Whatever happens, the future of Brexit and the EU could hang in the balance, and the period of uncertainty is likely to lead to market volatility.

In late June, the oil ministers of OPEC will gather in Vienna, Austria to decide on if they will continue the production cut of 1.2 million barrels per day put in place at their late 2018 meeting. With Iran at the table and Russia a significant force within the cartel, even though they are not a member, a surprise from OPEC is not out of the question. The oil market is likely to experience increased volatility going into the OPEC meeting and in its aftermath, depending on the cartel’s decision. Last Thursday’s significant downside correction in the price of oil and the ongoing rising tensions in the Middle East between the US and Iran could cause lots of two-way action in the price of the energy commodity that powers the earth.

The most substantial event in June could turn out to be the meeting between President Trump and President Xi at the G20 meeting in Osaka, Japan, just after the OPEC meeting at the end of the month. If the two Presidents agree to put the trade negotiations back on a path towards progress, we could see a significant recovery in markets across all asset classes as sentiment will shift from pessimism to optimism once again. However, if the meeting suffers the same fate as this year’s summit between President Trump and North Korean Leader Kim Jong Un, markets could experience a significant setback.

The bottom line is that we should fasten our seatbelts because we could be in for a wild ride in markets across all asset classes during June.

Have a wonderful Memorial Day Weekend!

Highlights in commodities:

  • Gold posts a 0.62% gain on the week
  • Silver moves 1.16% higher as it finally outperforms gold
  • Platinum falls 2.12% since last week. Platinum was at a $480.70 per ounce discount to gold as the discount widens since May 17
  • Palladium rises 1.52% for the week
  • July copper declined 1.42% on trade issues and a strong dollar as the price settled just below $2.70 per pound
  • July iron ore futures gain 3.44% as Brazilian supply issues continue to support the price of the primary ingredient in steel
  • The BDI continues to move higher and gains 3.49% since May 17
  • Rotterdam coal falls 4.13% on weakness in crude oil
  • July lumber gains only 0.77% as the price of July futures remains not far from the October 2018 low at $299.90 which stands as technical support
  • July NYMEX crude oil plunged by 6.74% since May 17 and was at $58.63 per barrel on Friday with the bulk of selling on May 23 as the price fell through $60 per barrel. New record high in US output at 12.2 million barrels per day and rising inventories add to the price woes
  • July Brent crude oil outperforms WTI as it falls 4.60% since the previous report. July Brent was at $68.82 per barrel on Friday as it took out the $70 level on May 23
  • The premium for Brent over WTI in July closes Friday at the $10.19 level up 97 cents since May 17 on fears about supplies from the Middle East
  • July gasoline moves 4.89% lower while July heating oil futures fall 5.82% over the past week
  • The gasoline crack spread in July was up 0.88% while the July heating oil crack fell 2.4% since May 17 reflecting seasonal factors
  • Natural gas failed at $2.70 and declines 1.25% on June futures closing the week at $2.598 per MMBtu. The EIA reported an injection of 100 bcf into storage on Thursday for the week ending on May 17
  • June ethanol rises 2.7% on strength in corn
  • July soybeans rebound just 0.97% since last week
  • July corn continues to rally and finishes 5.48% higher since last week at over $4 per bushel on late planting
  • CBOT July wheat posts a 5.27% gain since last week. July KCBT wheat trading at a 47.50 cents discount under CBOT wheat as KCBT continues to decline versus CBOT wheat which is a bearish sign for the market. The discount rose by 2.75 cents and remains at a depressed level
  • July sugar gains 0.95% since May 17
  • July coffee moved 4.83% higher to over the 93 cents per pound level
  • July cocoa gains 4.84% as the price could be breaking higher at $2467 per ton
  • July cotton rebounds 3.64% since last week
  • July FCOJ futures up 4.34%, as the price closes at just over $1 per pound
  • June live cattle move 0.78% lower since last week as selling continues
  • August feeder cattle down 1.56% since May 17
  • June lean hog futures fall 4.95% over the past week as the 2019 grilling season gets underway this weekend. Recalls on meats weigh on prices
  • The June dollar index futures contract falls 0.35% on the week after making a new high at 98.26 on May 23 and failing
  • June Long-Bond futures trading at 151-07 up 1-16 for the week as risk-off fears over trade continue to draw capital into the safe-haven
  • The Dow Jones Industrial Average closes at 25,586 on Friday, May 24, down 178 points from May 17. The S&P 500 falls by 1.17% since last week. The VIX moves just 0.11 lower and was trading at 15.85 on Friday.
  • Bitcoin trading at $8,110.65 on Friday up $988.03 or 13.87% since May 17. Technical resistance at around $8445 in Bitcoin
  • Ethereum was trading at $253.47 on Friday, up 8.45% since the last report

 

Price Changes for the week:

DBC closes at $15.63 per share, down 27 cents per share since May 17 on weakness in crude oil

Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.75 billion and trades an average daily volume of 836,933 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average daily volume in DBC and net assets again declined since May 17 in a sign that investors and traders continue to shun commodities.

Have a great weekend!

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.