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Commentary,

Commodities and Precious Metals Update (Week ending May 1, 2020)

Originally Posted May 4, 2020

Jeff Klearman

Jeff Klearman is a Portfolio Manager for GraniteShares. He has more than 20 years of experience in the finance industry, including senior roles at Deutsche Bank and Rich Investment Solutions.

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Key points

Energy prices all moved higher last week, with gasoline prices increasing the most.   WTI and Brent crude oil prices (July futures) increased 5.0% and 6.6%, respectively.  Gasoil and heating oil prices (July futures prices) increased 3.5% and 5.6%%, respectively.  Gasoline prices rose 7.9%. Natural gas prices increased 0.3%.

Grain prices were mixed with wheat and corn prices falling and soybean prices rising.  Chicago and Kansas wheat prices fell 2.6% and 0.5%, respectively and corn prices dropped 1.4%. Soybean prices increased 1.2%.

Sugar prices increased 11.8%.

Lean hog prices surged 21.7% last week and live cattle prices rose 5.6%.

Base metal prices, except for zinc prices, all finished lower.  Aluminum and nickel prices fell 2.1% and 2.4%, respectively and  copper prices fell 1.1%.  Zinc prices increased 1.6%.

Gold and silver prices fell 1.7% and 3.3%, respectively.  Platinum prices eked out a 0.3% gain.

The Bloomberg Commodity Index increased 0.78% last week.  The energy and livestock sectors were primarily responsible for the increase with the softs sector (mainly sugar) also contributing.  The precious and base metals sectors both detracted from index performance.

Total assets in commodity ETPs rose last week, increasing $1.579.6m. As in the two previous weeks, the lion’s share of the increase came from gold ($1,443.1m). Other notable inflows included energy (ex-crude oil) ($75.9m), and crude oil ($27.7m). There were no significant outflows.

Commentary

With guarded optimism surrounding the re-opening of some states, positive news regarding Gilead’s Covid-19 treatment remdisivir and the FOMC declaring the U.S. Federal Reserve would maintain its unprecented accomodative monetary policy to support the economy,  the S&P 500 increased 3.6% through Wednesday.  The increase came despite a larger-than-expected 4.8% decline in Q1 GDP. Thursday’s reports showing a large drop in U.S. consumer spending and intial jobbless claims of 3.84 million pushed the S&P 500 Index off its highs of the week while disappointing earnings reports from tech and oil companies and a much larger-than-expected decline in the ISM manufacturing index erased all gains on the week with the S&P 500 index dropping 2.8% on Friday.    The U.S. dollar, affected by both disappointing economic reports and earnings and the FOMC’s announcement on Wednesday, weakened significantly,   At week’s end the S&P 500 Index decreased 0.3% to close at 2830.71, the 10-year U.S. Treasury rate increased 1bps to 0.62% and the U.S. dollar (as measured by the DXY Index) weakened 1.7%.

Down 17% through Tuesday on continued oversupply concerns, WTI crude oil prices (July futures) rallied the rest of the week to finish up 5%.   Decreased fears of inadequate storage for oil spurred by lower-than-expected oil, gasoline and distillate inventories and a decline in oil production as reported by the EIA helped move WTI crude oil prices (July futures) almost 27% higher from Tuesday’s lows.  Friday’s Baker-Hughes rig count report showed the number of active oil rigs fell again last week, decreasing by 53 to 325.

Higher through Wednesday on expectations of increasing demand with easing lockdowns in China and globally as well as coronavirus-related production disruptions, base metal prices fell steeply on Friday after President Trump threatened new tariffs in retaliation to the coronavirus outbreak.  Zinc prices, the best performing base metal last week, were supported by steeply declining LME inventories.

Gold prices moved lower with easing lockdown conditions in the U.S. and globally, despite significant weakening in the U.S. dollar.  Gold prices did move off their Thursday’s lower, possibly supported by renewed U.S.-China trade tensions and weak earnings reports on Friday.

Corn prices continued to move with oil prices, falling 3.4% through Tuesday following falling WTI crude oil prices and then increasing as crude oil prices increased.   Wheat prices, especially Chicago wheat prices, suffered from increased plantings expectations and increased global supply.  Soybean prices moved higher with expectations of increased export demand, higher oil prices and a stronger Brazilian real.

Sugar prices, like corn prices, also followed crude oil prices during the week but also benefited from a stronger Brazilian real versus the U.S. dollar.

Live cattle and lean hog prices increased on expectations of increased demand as a result of meat processing plants being declared essential businesses.  Lean hog prices also benefited from strong export demand.

Coming up this week      

  • Light but substantive data week regarding the stength of the U.S. economy.
  • Motor vehicle sales and factory orders on Monday.
  • International trade and the ISM non-manufacturing index on Tuesday.
  • ADP employment report on Wednesday.
  • Jobless claims on Thursday.
  • Employment situation report on Friday.
  • EIA petroleum report on Wednesday and Baker-Hughes rig count on Friday.

Commodities

Jeff Klearman

Jeff Klearman is a Portfolio Manager for GraniteShares. He has more than 20 years of experience in the finance industry, including senior roles at Deutsche Bank and Rich Investment Solutions.

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