• Gold and silver post gains on the week after the Fed cuts interest rates by 25 basis points
  • Platinum corrects lower while palladium posts a new record high- Copper and iron ore prices move lower
  • Oil and oil products move appreciably higher on the back of attacks on Saudi oil fields- Natural gas corrects to the $2.50 per MMBtu level
  • Cocoa moves higher while coffee falls on the week
  • Stocks are little changed on the week as the dollar index slips marginally

The story of this week:

 

Iran Overshadows The Fed

 

Last weekend, Iran appears to behind an attack on Saudi oil fields. Seventeen drones struck at the heart of Aramco’s production, knocking out 50% of output and 6% of the world’s supplies. The price of crude oil gapped higher in the aftermath of the assault.

Source: CQG

As the daily chart of the active month, November NYMEX futures shows, the price of crude oil settled at $54.79 on Friday, September 13. As the attack occurred on Saturday, September 14, the price gapped higher to a peak at $63.89 per barrel on Monday, September 16, a rise of 16.6% from the previous close. The price eased back to settle at the end of last week at just over the $58 per barrel level after the Saudis said that production would be back online by the end of the month.

Source: Barchart

Brent is the benchmark pricing mechanism for Middle Eastern crude oil. November Brent futures on ICE moved from a closing price on September 13 at $60.22 to a high at $71 or 17.9% on September 16. Brent was trading around the $64.65 per barrel level on September 20.

The world continues to wait for a response from Saudi Arabia, the US, or both. The increase in tension in the Middle East after a couple of weeks of calm is a warning that volatility in the crude oil market has just begun. At the same time, the potential of a risk-off period if hostilities intensify in the region has increased.

Meanwhile, the Fed cut the short-term Fed Funds rate by 25 basis points at its September 18 meeting, as the market had expected. Perhaps the important news that came out of the Fed meeting was the division of opinion between the members of the FOMC. The vote to reduce the Fed Funds rate for the second time since July 31 was 7-3. Eric Rosengren and Esther George, who both dissented to the July 31 cut again voiced their opposition to lower short-term rates. However, James Bullard voted against the move because he supported a 50-basis point reduction. The division of the Fed is a sign that future meetings could be dramatic as the market will not have many clues about the next move by the central bank. While economic data will drive the Fed, it will be developments on trade and Brexit that could be the primary drivers as the Fed is highly sensitive to these “crosscurrents.”

On Friday, the Chinese delegation cut its trip to Washington DC short and canceled a trip to Montana. The departure of China’s negotiators is a sign that trade continues to be a highly contentious issue, and progress will be slow. US stocks dropped in the aftermath of the news, and gold rallied. While the market may have read too much into the departure, the ups and downs of trade negotiations are likely to continue to stoke recession fears. Between Iran, trade, and Brexit, volatility in markets across all asset classes remains the norm rather than the exception.

Last week, Iran trumped trade as the driving force in markets, but the Middle East, China, and events in Europe will continue to provide market-moving headlines in the coming weeks.

 

Highlights in commodities:

 

  • Gold moves 1.04% higher as the market consolidates after the recent correction
  • December silver outperforms gold and recovers by 1.59% on the week
  • Platinum posts a 1.01% loss on the week. October platinum was at a $565.40 per ounce discount to October gold futures, which widened since last week
  • Palladium moved 1.51% higher for the week and made another new all-time high as the price settled at $1625 per ounce
  • December copper fell 3.45% as the price drops to the $2.60 level
  • November iron ore futures move 8.28% lower on the week as the price corrects
  • The BDI corrected 5.96% lower since September 13 and falls to the 2192 level
  • November Rotterdam coal moves 1.65% higher since last week
  • November lumber gains 1.27% since last week
  • November NYMEX crude oil rose 6.02% since September 13 on the back of the attacks on Saudi oil fields
  • November Brent crude oil moved 6.80% higher since the previous report as the Brent outperformed WTI crude oil
  • The premium for Brent over WTI in November closes Friday at the $6.17 level up $0.80 from last week
  • November gasoline moves 7.56% higher while November heating oil futures rise 5.76% over the past week
  • The gasoline crack spread in November was 14.81% higher while the November heating oil crack moved 5.80% to the upside since September 13 as refining margins rise
  • Natural gas corrected 3.06% lower on October futures closing the week at $2.534 per MMBtu after reaching a high at $2.71 at the start of the week. The EIA reported an injection of 84 bcf into storage on Thursday for the week ending on September 13
  • November ethanol moves 0.29% higher on the week on the back of strength in gasoline prices
  • November soybeans fell 1.78% since last week as the market continues to be concerned over trade between the US and China
  • December corn rose 0.54% on the week
  • CBOT December wheat gained 0.16% since last week. December KCBT wheat trading at a 76.75 cents discount under December CBOT wheat. The discount moved towards the historical norm by 7.00 cents since last week
  • October sugar rose 1.84% since September 13 as it moved just above the 11 cents per pound level with October futures rolling to March
  • December coffee fell 4.23% on the week
  • December cocoa rose by 5.82% since last week
  • December cotton fell 2.83% since September 13 on concerns over trade
  • November FCOJ futures fell 1.77% since last week’s report
  • October live cattle gained 1.30% since last week
  • October feeder cattle rose 3.44% since September 13
  • October lean hog futures fell 9.21% over the past week on concerns over trade
  • The December dollar index futures contract rose 0.31% on the week despite rate cut by the Fed
  • December Long-Bond futures trading at 161-17 up 3-31 for the week after the Fed rate cut
  • The Dow Jones Industrial Average closes at 26,935 on Friday, September 20, down 285 points from September 13. The S&P 500 fell 0.51% since last week. The VIX rose 1.58 and was trading at around 15.32 on Friday
  • Bitcoin was trading at $10,166.91 on Friday down $64.84 or 0.63% since September 13
  • Ethereum was trading at $217.03 on Friday, up 20.92% since the last report

 

Price Changes for the week:

DBC closes at $15.48 per share, up 37 cents per share since September 13  

Source: Barchart

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 1,007,656 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. Average volume rose over the past week as the price of the ETF increased.

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.