Commodity Chart Deck #15

The past trading week was a green week for as good as all commodities. The main driver was the correction in the USD and more negative Realyield expectations.

The biggest winner of last week was the energy sector. Oil is still in a backwardation and market participants seemed to understand that the Delta variant won’t suppress demand on a sustained level. Moreover, inventories were lower than expected, which drove Natgas to a price explosion upwards.

Here is my latest playbook:

  1. If the USD keeps falling, buy more Precious Metals, which in the current market environment should outperform Industrial Metals

  2. Strategic buying of Corn and Soybeans in preparation for a possible La Nina event in late 2021/beginning 2022. The seasonality for both products is good, buying behavior of commercials as well.

  3. Watch the USD during the whole week closely. For me, it’s currently the trigger for many major decisions in the market and my asset allocation. Both seasonality and positioning could lead to higher yields and a higher USD in the near term

  4. Away from the commodity sector, I like the setup in the EM equities. Once the USD slips this could become a favored trade by many participants. For now, nobody likes EM equity which is good to find great entry opportunities.

US Dollar Update

I think that the direction of the USD is still not really clear. The week before last we saw the bullish breakout and last week there was a strong selloff in the USD. Seasonality and positioning continue to suggest a firmer USD. Therefore I remain skeptical. I would only change my opinion if the Dollar Index closed below 92.5 USD, which would also mark a lower low.

Keep in mind that we ended last week on high volatility after the Jackson Hole speech of FED chair J.Powell who signaled that tapering the bond purchases could be possible in 2021 but wasn’t more specific about the timing.

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Open Positions:    
- Long Gold @ 1785 USD

Closed Positions 
- Short Euro @ 1.172 USD, closed @ 1.175
- Short Australian Dollar @ 0.729 USD , closed @ 0.720
- Long Bitcoin @ 42880 USD, closed @ 49430 USD

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

Looks like the European Carbon Emission Futures are on their way to new highs!

Elsewhere In The Macro World

There was quite a divergence between the speech that the FED chair J.Powell gave on Friday and the other statements other central bank officials made. Here are a few examples. While most participants seem to sound more hawkish, the speech by Powell was more dovish than I expected.

  • Powell Says Taper Could Start in 2021, With No Rush on Rate Hike

  • Bullard Says Continued Bond Buying May Do More Harm Than Good

  • Kaplan Says Taper Process Should start as soon as possible

  • Mester Favors Starting Bond Tapering Sometime This Year

  • Bostic Says ‘Let the Economy Stand on Its Own’ and favors Quick Taper

  • Waller Sees Inflation More Persistent Now Than in May

Market participants either don’t see a high probability of near tapering or they don’t think that it will influence the USD and shorter-term yields in a supporting way. This was bad news for the USD and if this view doesn’t change, the USD and yields will drop further.

This week look out for:

  • Chinese PMI data on Tuesday

  • PMI data for the US and Europe on Wednesday

  • Another OPEC+ meeting, also on Wednesday

  • The latest US jobs report on Friday (if the numbers are good, tapering will start soon IMO, watch yields and the USD)

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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)