Commodity Chart Deck #14

Last week was risk-off time and you definitely saw it in the weekly performance. Moreover, the US Dollar seems to be the king of currencies again, because tapering is near.

The past trading week was again marked by enormous volatility throughout all commodity sectors. Why? After the latest FOMC statement, it seems like tapering is getting nearer and nearer. The announcement itself should already be made as soon as September. This could mean higher yields on the short end of the yield curve as well as a higher USD. So not the best news mix for commodities overall, if you also think about rising Delta cases and within that more and more restrictions around the world.

Here is my latest playbook:

  1. Because of the risk-off mood, Gold is outperforming again. Moreover, the precious metal was able to rise even during higher Realyields and a higher USD in the last week. I think there is room for Gold to rise further

  2. Treasuries were trading in a very slim range last week. I believe that we will see a breakout soon. My guess is to the downside, which would mean higher yields. Over the long term, I like the shorter end of the yield curve more than the long end. Watch for a breakout!

  3. Some commodities are still in a backwardation. There are plenty of examples like Coffee, Sugar, Cocoa and even Grains. The entire market was sold off last week. However, these commodities are currently still supported by a structural supply deficit.

  4. There are currently fears of further COVID restrictions and cooling of the global economy. When these fears normalize again, Oil and Natural Gas are my picks, for now especially Oil seems to be in a free fall.

US Dollar Update

The USD was finally able to perform a breakout to the upside. The seasonality till the end of the year also favors a stronger USD as well as higher yields on treasuries. I’m already short the Euro and the Aussie and planning to add to those positions on strong days.

The USD broke the resistance mark 93.4/93.5 and therefore also realized a higher high, which is extremely bullish. It soon could become a real pain trade for many asset classes, because the positioning is still in favor of a bearish dollar. So there is basically lots of room for the USD to rise further.

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Open Futures Positions:    
- Long Gold @ 1785 USD  
- Long Bitcoin @ 42880 USD
- Short Euro @ 1.1724 (NEW)
- Short Australian Dollar @ 0.7252 (NEW)
Closed Positions
- Long Crude @ 69.27 USD / Closed with a loss @ 65.38 USD
- Long Corn @ 572' USX / Closed with a loss @ 551' USX

As always, here are my current top setups, selected from all major commodities and other important markets:

Having a plan in the current market environment is key. You can be entirely out of the market, or you can use hedging strategies. Going short the GSCI or the BB Commodity index is the first and going short on the Brazilian Real is the second one.

Elsewhere In The Macro World

The cost of shipping containers around the world isn’t getting any cheaper.

The Baltic Dry Index (BDI) is an index of average prices paid for the transport of dry bulk materials across more than 20 shipping routes. So it tells us something about supply and demand in relation to global trade. More and more shipping ports, especially in the Asian region, have to interrupt their loading activities again and again due to COVID cases. This means that the supply of containers is again becoming scarcer. Therefore, the price of freight shipping is also increasing.

This week look out for:

  • Manufacturing PMI of US, EU, UK on Monday

  • Crude Oil and NatGas inventories on Wednesday and Thursday

  • Thursday: Jackson Hole Symposium starts (More hints on the tapering discussion) and lasts till Saturday. J.Powell will speak on Friday

  • US Core PCE Price Index on Friday (another indication for the inflation outlook)

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Till next Monday, Lukas

If you have any questions in the meantime, please feel free to contact me via Twitter or Mail.

(The Commodity Report is not investment advice)