Commodity Report #18

Overall it was a solid week for commodities. But one big loser were precious- and industrial metals. Driven by lower inflation expectations as well as higher yields the Realyield was surging and dragging metals down. The energy sector was once again on the winning side. Prices are already sky-high but the cold winter demand isn’t even priced in IMO. Grains also showed a good performance are in line with my expectations of a price decrease in this sector till year-end. The price action at Softs is still interesting, with Cotton, Sugar and Cocoa still deciding rather they break out to the up- or downside.

Here is my latest playbook:

  1. Gold miners are really beaten down now. IMO this could offer great opportunities in the coming weeks.

  2. Another reminder of why I will buy the next leg higher in copper. If governments all over the world want to reach their climate goals, the metal will become increasingly harder to find.

  3. Can Grains recover? Corn and Soybeans with great setups. But be careful those Grains setups can also be bearish head and shoulders patterns.

  4. Energy Sector is going bananas. the explanation is really simple. Fewer investments = less supply → but demand stays high because disruption to renewables takes time (from the monthly IEA report)

  5. Triple Witching Hour is done - so we’re ready for the next leg higher in equities. If you look at this year and the behavior of stocks after the TWH week, it really could be as simple as that.

US Dollar Update - In a nowhere territory

I think that the direction of the USD is still not really clear. I position myself still neutral. (Seasonality till December is in favor of a higher USD)

If Europe is starting to go back into lockdowns again during Autumn and Winter, the Euro could lose some additional ground against the USD. Moreover, it looks like the US needs to increase its debt ceiling till year-end, which should also benefit the USD, as it has in the past.

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Open Positions:      
- Long Gold @ 1785 USD   
- Short Cotton @ 92.72 USX 
- Short Sugar @ 19.50 USX
- Long Corn @ 528'2 USX

Closed Positions:
- Long Crude @ 69.71 USD, closed @ 72.62 USD

Elsewhere In The Macro World

In this week’s Consumer Price Inflation print we got some new information about the state of price increases in the US. While the overall number was slightly lower than consensus with CPI of 0,3% vs. 0,4% expected, the underlying drivers of lasting longer-term inflation are still in play. IMO a scenario in which inflation will be between 2,5 and 3,0% is likely over the next year, so significantly above the FED’s target. Here is a list of which areas are transitory and which not:

temporary: logistics & shipping, used car prices

long-term inflationary: energy prices, industrial metals, wage growth of low skilled jobs, rent increases

This week look out for:

  • US Building Permits and Starts on Monday

  • FOMC meeting on Wednesday

  • US Manufacturing & Services PMI

  • Oil and Gas inventories on Wednesday and Thursday

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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)