- Gold and silver correct with the volatile silver market underperforming the yellow metal
- Platinum stable while palladium rises to a new record high and copper recovers
- Oil and oil products move lower while natural gas breaks out on the upside and closes the week over the $2.60 per MMBtu level
- Strength in grains on the back of optimism over trade and a more positive tone to the latest WASDE report
- Stocks rally, the dollar edges lower with Bitcoin as the markets await next week’s Fed meeting in the aftermath of a dovish message from the ECB
The story of this week:
The ECB Speaks- The Fed Is Up Next
A sense of calm returned to the market during the week of September 9. Optimism over trade between the US and China lifted equity markets. Geopolitical tensions also subsided after National Security Director John Bolton left the Trump administration and rumors of a meeting between the US and Iran emerged. While the prospects of a more peaceful landscape in the Middle East weighed on the price of crude oil, the news on trade lifted copper to the $2.70 per pound level. Other commodities that had been in the crosshairs of the trade dispute also rallied with soybeans, lean hogs, and cotton posting gains.
While oil was trading at the middle of its trading range at $55 on the nearby NYMEX futures contract, natural gas broke to the upside above the $2.53 per MMBtu level and was at $2.60 on Friday. Gold and silver prices continued to correct from recent highs, but palladium made a new high on the week at over $1600 per ounce.
The European Central Bank met and cut its short-term interest rate by ten basis points. At the same time, the ECB said that quantitative easing to the tune of 20 billion euros per quarter would start in November. The dovish news from the ECB sets the stage for the September 18 FOMC decision this coming week.
The criticism from President Trump continues to hit the Fed, and that is likely to intensify next week if the central bank cuts by one-quarter of one percent or leaves rates unchanged. It is likely that the two dissenters at the July 31 meeting, Eric Rosengren and Esther George, will again argue against reducing the Fed Funds rate.
Meanwhile, the move by the ECB might put more pressure on the Fed than the President as the US economy does not exist in a vacuum. A weak economy in Europe and uncertainty and turmoil surrounding Brexit are reasons for at least a 25-basis point rate cut. However, the calming of tensions between the US and China could provide a basis for the Fed to stand pat on rates and wait for more data over the coming weeks before making a move. The bond market moved significantly lower over the past sessions with the December long bond futures falling from 166-25 on August 29 to a low at 157-18 last Friday. The decline is a sign that the market may be changing its view when it comes to aggressive rate cuts from the Fed before the end of 2019.
Next Wednesday will be a nervous day in markets as they will hold their collective breath for the Fed decision. I believe we will see a 25-basis point cut in the Fed Funds rate with no clear guidance for the future. When it comes to commodities, the environment of falling interest rates around the world continues to be supportive of a decline in the value of currencies and supportive of many raw material prices. While optimism over trade and Brexit returned over the past two weeks, we have seen optimism pivot to pessimism in the blink of an eye. I continue to keep my seatbelt fastened for volatility in markets across all asset classes throughout the rest of 2019.
Highlights in commodities:
- Gold moves 1.06% lower as the correction continued
- December silver underperforms gold and drops 3.04% on the week
- Platinum posts a small 0.66% loss on the week. October platinum was at a $540.70 per ounce discount to October gold futures, which narrowed since last week
- Palladium moved 3.64% higher for the week and made a new all-time high as the price settled above $1600 per ounce
- September copper gains 2.49% as it follows through on the upside after last week’s bullish reversal and optimism over trade between the US and China
- October iron ore futures move 12.81% higher on the week as supply concerns continue to dominate the market
- The BDI corrected 6.72% lower since September 6 and falls to the 2331 level
- October Rotterdam coal moves 7.06% higher since last week
- November lumber gains 6.86% since last week
- October NYMEX crude oil fell 2.95% since September 6 as the rig count continues to decline. The departure of John Bolton from the Trump administration increases hopes of talks with Iran
- November Brent crude oil moved 2.18% lower since the previous report as the Brent outperformed WTI crude oil
- The premium for Brent over WTI in November closes Friday at the $5.37 level up $0.29 from last week
- October gasoline moves 1.34% lower while October heating oil futures fall 1.18% over the past week
- The gasoline crack spread in October was 7.85% higher while the October heating oil crack moved 3.06% to the upside since September 6 as refining margins rise
- Natural gas rose 4.73% on October futures closing the week at $2.614 per MMBtu after breaking out to the upside over $2.53 at the start of the week. The EIA reported an injection of 78 bcf into storage on Thursday for the week ending on September 6
- October ethanol moves 3.99% higher on the week on post-WASDE buying in the corn futures market
- November soybeans rose 4.78% since last week after the WASDE report on Thursday and on the back of optimism over trade
- December corn recovered by 3.73% on the week
- CBOT December wheat gained 4.26% since last week. December KCBT wheat trading at an 83.75 cents discount under December CBOT wheat. The discount moved away from the historical norm by 13.25 cents since last week
- October sugar dropped 1.18% since September 6 as it remains below the 11 cents per pound level
- December coffee rose 5.87% on the week
- December cocoa recovered by 2.64% since last week
- December cotton rose 6.32% since September 30 as the latest WASDE report led to buying
- November FCOJ futures fell just 0.05% since last week’s report
- October live cattle gained 3.37% since last week on exemptions from China as an olive branch for trade
- October feeder cattle rose 2.81% since September 6
- October lean hog futures rose 4.69% over the past week as China needs US pork after losses because of African swine fever
- The December dollar index futures contract falls 0.11% on the week despite rate cuts by the ECB
- December Long-Bond futures trading at 157-18 down 7-02 for the week as interest rates spike higher.
- The Dow Jones Industrial Average closes at 27,220 on Friday, September 13, up 423 points from September 6. The S&P 500 gains 0.96% since last week. The VIX falls 1.35 and was trading at around 13.74 on Friday
- Bitcoin was trading at $10,231.75 on Friday down $156.19 or 1.50% since September 6
- Ethereum was trading at $179.48 on Friday, up 5.06% since the last report
Price Changes for the week:
DBC closes at $15.11 per share, down one cent per share since September 6
DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.42 billion and trades an average daily volume of 981,137 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. Average volume fell over the past week while the ETF was virtually unchanged.
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.