May 31, 2019

  • Gold rallies and breaks a bearish pattern since February, but other precious metals lag as the stock market falls
  • Copper and industrial commodities continue to suffer from the impact of protectionism
  • Crude oil plunges, natural gas falls near its 2019 low
  • Grains recover with soybeans and corn leading the way- Coffee explodes over 12% higher on the week
  • Not much change in the dollar index, but Bitcoin and digital currencies post gains on the week

 

The story of this week:

Crude Oil Falls, Coffee Rises, and the US Slaps Tariffs On Another Country

It was an ugly week in markets with equities and crude oil falling. The stock market posted a loss for the sixth consecutive week, while crude oil fell like a stone to a low at just over $53.00 per barrel on the July NYMEX futures contract during the final trading session of May.

The selling that hit the stock market on Friday came after President Trump said he would put tariffs on Mexican exports to the US on June 10 because of the Mexican government’s lack of cooperation over immigration. As the protectionist policies now spread from China to bordering Mexico, stocks suffered significant losses on Friday. At the same time, crude oil fell to a new and lower low on May 31 as the selling continued despite rising tensions in the Middle East.

Source: CQG

The weekly chart of NYMEX crude oil futures shows that over the final two weeks of May, the energy commodity became a falling knife. On May 31, crude oil fell to a low at $53.05 per barrel and settled the session at $53.50 on the July contract. The price of the energy commodity had declined by almost 20% from the high during the week of April 22. The next level of support stands at the $50 per barrel level. As we head into June, the OPEC meeting is at the end of the month, and the energy ministers are not likely to increase production given the recent trend in the price of the energy commodity. On May 30, the EIA said that US daily output rose to a new record level at 12.3 million barrels. Oil and oil-related equities are under siege, the OIH oil services sector ETF dropped to a record low at around $13 per share on Friday.

The new tariffs on Mexico are likely to cause further distortions in commodities prices. We could see volatility increase in agricultural commodities futures over the coming weeks. Over the past week, the value of the Brazilian real against the US dollar rose.

Source: CQG

As the daily chart shows, the real moved from a low at $0.24225 on May 20 to the $0.2521 level at the end of last week which supported the price of commodities where the South American nation is the leader in production and exports. Sugar futures posted a 3.77% gain on the week and moved back over the 12 cents per pound level. FCOJ futures gained 7.38% on a week-on-week basis. Brazil is the world’s leading producer and exporter of sugarcane and oranges. The most significant move to the upside came in the coffee futures market which posted a 12.11% gain compared to last Friday after a bullish reversal on the weekly chart last week.

Source: CQG

As the weekly chart illustrates, the price of nearby coffee futures moved from a low at 86.35 cents per pound during the week of April 15 to a high at $1.0530, a recovery of 21.9% with the bulk of the move coming over the past two weeks as the price took off from a low at 86.75 cents. July futures closed just near the highs at $1.0460 per pound on May 31.

Fasten your seatbelts; there is lots of volatility in markets across all asset classes coming our way in June. In a sign of fear and uncertainty, the price of gold broke a pattern of lower highs on the final day of May.

Highlights in commodities:

  • Gold posts a 1.66% gain on the week
  • Silver moves only 0.08% higher as it lags gold
  • Platinum falls 1.08% since last week. Platinum was at a $511.60 per ounce discount to June gold futures as the discount widens since May 24
  • Palladium rises 0.45% for the week
  • July copper declined 2.44% on trade issues as the price settled just above the $2.63 per pound level
  • July iron ore futures fell 2.78% after recent gains
  • The BDI continues to move higher and gains 2.72% since May 24
  • Rotterdam coal falls 6.38% on weakness in energy prices
  • July lumber falls 7.50% as the price of July futures is just above the $300 level
  • July NYMEX crude oil plunged by 8.75% since May 24 and was at $53.50 per barrel on Friday as the energy commodity becomes a falling knife. New record high in US output at 12.3 million barrels per day and trade concerns add to the price woes
  • July Brent crude oil rolls to August and falls 8.67% since the previous report. August Brent was at $61.62 per barrel on Friday
  • The premium for Brent over WTI in August closes Friday at the $8.30 level down 56 cents since May 24 as the market concentrates on demand and the global economy rather than Iran
  • July gasoline moves 7.41% lower while July heating oil futures fall 6.67% over the past week
  • The gasoline crack spread in July was 5.26% lower while the July heating oil crack fell 2.70% since May 24 on weakness in the oil patch
  • Natural gas fell 5.98% on July futures closing the week at $2.454 per MMBtu. The EIA reported an injection of 114 bcf into storage on Thursday for the week ending on May 24
  • July ethanol rises 7.39% on strength in corn
  • July soybeans rebound 5.78% since last week
  • July corn continues to rally and finishes 5.63% higher since last week at over $4.25 per bushel on late planting
  • CBOT July wheat posts a 2.76% gain since last week. July KCBT wheat trading at a 30 cents discount under CBOT wheat. The discount declined by 17.50 cents which was supportive of the price of the grain
  • July sugar gains 3.77% since May 24 and closes above 12 cents per pound
  • July coffee explodes 12.11% higher to the $1.05 per pound level after trading at under 90 cents in recent weeks
  • July cocoa declines 2.72% to the $2400 level on July futures
  • July cotton edges 0.45% lower since last week
  • July FCOJ futures moved 7.38% higher, as the price closes at over $1.08 per pound
  • August live cattle decline 4.52% since last week as selling continues
  • August feeder cattle plunge 7.05% since May 24
  • August lean hog futures fall 3% over the past week
  • The June dollar index futures contract rises just 0.19% on the week after making a new high at 98.26 on May 23 and correcting
  • June Long-Bond futures trading at 153-31 up 2-24 for the week as risk-off fears over trade continue to draw capital into the safe-haven
  • The Dow Jones Industrial Average closes at 24,815 on Friday, May 31, down 771 points from May 24. The S&P 500 falls by 2.62% since last week. The VIX moves just 2.85 higher and was trading at 18.71 on Friday.
  • Bitcoin trading at $8,474.72 on Friday up $364.07 or 4.49% since May 24. Technical resistance at around $9125 in Bitcoin
  • Ethereum was trading at $262.55 on Friday, up 3.58% since the last report

 

Price Changes for the week:

DBC closes at $15.13 per share, down 50 cents per share since May 24 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 806,904 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 24 in a sign that investors and traders continue to shun commodities.

Have a great weekend!

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