• Gold and silver move lower, but platinum and palladium grain
  • Strength in oil, oil products, and ethanol, while natural gas falls
  • Grains and meats post gains on optimism over trade
  • Coffee, sugar, and FCOJ fall while cotton and cocoa gain
  • The dollar index falls, and Bitcoin moves to the upside

The story of this week:

 

All Quiet Before A Volatile Storm

 

The beginning of the fourth quarter of 2019 has been eerily reminiscent of the same period last year. The stock market has been leaning lower, and the price of crude oil has been declining. In Q4 2018, rising interest rates in the US weighed on markets across all asset classes. The Fed increased the short-term Fed Funds rate by 25 basis points in 2018 with the final move coming in December. Meanwhile, the trade issues between the US and China were a dispute during the last months of 2018 rather than a trade war.

This year, many more issues are facing the world markets as we move towards the end of this year. At the end of this month, the deadline for the UK’s departure from the EU will likely come and go giving way to yet another extension. Prime Minister Johnson pledged to fulfill the will of the British people by taking the UK out of the union with or without an agreement. However, the UK Parliament put a roadblock in front of the Prime Minister, and if he does not have a deal in hand by October 19, the law will require him to request an extension. We could see a general election in the UK by the end of this year, which would be a second referendum on Brexit.

In the Middle East, the Saudis and US have not retaliated against Iran after the September 14 drone attack that knocked out 50% of Saudi output, amounting to 6% of the world’s supply of the energy commodity. While Saudi Arabian output is back at pre-attack levels, there has been no significant response to the attack. The political temperature in the region continues to be at a boiling point.

The trade war between China and the US is ongoing. While both sides continue to negotiate, the US wants a sweeping deal while China is not on the same page. The market sentiment has shifted between optimism and pessimism over a trade deal, which looks likely to continue.

In the US, the House of Representatives began impeachment inquiries in a host of committees. With the 2020 election on the horizon, a candidate that will challenge the incumbent President has not yet emerged. However, the opposition party appears to be shifting its policies to the left, which could dramatically change US domestic and foreign policy if they win the November 2020 contest.

On Friday, two missiles hit an Iranian tanker carrying crude oil off the coast of Saudi Arabia. Optimism over trade dominated market action on the final session of the week. At the same time, there seemed to be progress towards a Brexit agreement around the contentious issue of the Irish border. The US and China announced an agreement on phase one of a trade deal. The move will delay or eliminate tariff increases and allow for Chinese purchases of US agricultural exports.

The bottom line is that more than a few issues facing markets could cause substantial bouts of volatility based on the news cycle over the coming weeks and months. Fasten your seatbelts when it comes to the markets, the current period of relative calm is not likely to last very long.

Highlights in commodities:

 

  • December gold moves 1.60% lower as the market settles below $1490 per ounce
  • December silver outperforms gold and falls by 0.46% on the week
  • Platinum posts a 1.51% gain on the week. January platinum was at a $588.40 per ounce discount to December gold futures, which narrowed since last week
  • Palladium moved 1.69% higher for the week with December futures settling at $1670.10 per ounce
  • December copper rose 2.56% as the price moves to just below the $2.63 level
  • November iron ore futures moved 0.70% lower on the week
  • The BDI gains 9.79% lower since October 4 and rises to the 1929 level
  • November Rotterdam coal moves 3.02% higher since last week on the rebound in oil and oil product prices
  • November lumber rises 1.01% since last week
  • November NYMEX crude oil recovered by 3.58% since October 4 as the energy commodity bounces from the bottom end of its trading range
  • December Brent crude oil moved 3.68% higher since the previous report as Brent marginally outperformed NYMEX crude oil
  • The premium for Brent over WTI in November closes Friday at the $5.73 level up $0.11 from last week
  • November gasoline moved 4.16% higher while November heating oil futures gains 3.33% over the past week
  • The gasoline crack spread in November was 7.44% higher while the November heating oil crack moved 2.17% to the upside since October 4 as refining margins continued to move higher
  • Natural gas fell 5.87% on November futures closing the week at $2.214 per MMBtu after reaching a low at $2.187 on October 11. The EIA reported an injection of 98 bcf into storage on Thursday for the week ending on October 4
  • November ethanol moves 8.42% higher on the week on the back of the strength in crude oil, gasoline, and corn prices
  • November soybeans rose 2.16% since last week on a positive WASDE and progress on US-Chinese trade
  • December corn rose 3.38% on the week despite a bearish WASDE on the back of trade
  • CBOT December wheat gained 3.57% since last week. December KCBT wheat trading at an 88.50 cents discount under December CBOT wheat. The discount moved away from the historical norm by 2.0 cents since last week
  • March sugar fell 2.74% since October 4
  • December coffee fell 5.35% on the week
  • December cocoa gained 1.25% since last week
  • December cotton gained 3.58% since October 4 on trade
  • November FCOJ futures fell 2.65% since last week’s report
  • December live cattle gained 1.24% since last week
  • November feeder cattle were 2.03% higher since October 4
  • December lean hog futures moved 3.49% higher over the past week
  • The December dollar index futures contract fell 0.49% on the week
  • December Long-Bond futures trading at 160-23 down 4-03 for the week as prospects for lower interest rates fall
  • The Dow Jones Industrial Average closes at 26,817 on Friday, October 11, up 243 points from October 4. The S&P 500 rose 0.62% since last week. The VIX fell 1.46 and was trading at around 15.58 on Friday
  • Bitcoin was trading at $8,357.48 on Friday up $126.99 or 1.54% since October 4
  • Ethereum was trading at $182.52 on Friday, up 2.27% since the last report

 

Price Changes for the week:

DBC closes at $15.29 per share, up 29 cents per share since October 4 on strength in energy prices  

 Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.41 billion and trades an average daily volume of 1,041,304 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 with the price of the ETF.

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.