Metals hit by taper talks as Opec gives oil a boost
Commodities traded mixed in the first week of June, with buying fatigue showing in both precious and industrial metals, while grains and especially the energy sector rose.
Overall, the Bloomberg Commodity Spot Index hit a new ten-year high despite concerns that stronger-than-expected macro data from an overstimulated US economy could see the Federal Reserve start talking more openly about the cut. support, writes Ole Hansen, head of commodities strategy. at Saxo Bank.
Growing worries about inflation, increased demand for green process metals, Opec + maintaining the stranglehold on supply, and weather concerns are all expected to continue to fuel a large rally over the coming months.
In the very short term, however, several commodities lost momentum while others became overbought, running the risk of a rapid correction including most metals and coffee.
Crude oil surged higher ahead of the last Opec + meeting where the group, as expected, decided to stick to its expected July increase, but assessing the prospect of a continued upturn in demand and uncertainties over an Iranian nuclear deal, the group declined to give clues on their next move. While the recovery in global fuel demand remains far from synchronized amid concerns over tightening Covid-19 restrictions in Asia, the market appears happy in the near term to focus primarily on the positive outlook for the economy. asks the United States and parts of Europe.
These developments have nevertheless helped to tighten market conditions, with Opec anticipating an under-supplied global market in the second half of the year, with the exception of course of additional barrels of Opec +, Iran or American shale. The recent price rise that peaked with Brent challenging a key resistance area around $ 72 and WTI peaking in 2018 was led by WTI crude oil amid seasonal US gasoline stocks ahead of a season of Heavy summer driving and crude inventory at Cushing, WTI’s delivery center, is behind the five-year average. This was compounded by no clear signs of increased output from the former shale oil sector, which has now become much more disciplined in its approach to rising oil prices.
Gold was set to experience its worst weekly drop since March after finally succumbing to profit taking after the sharp rise since early April. Meanwhile, and especially in the last month since breaking above key technical levels, an underlying supply from long-term trend following funds had kept the market steadily rising.
But after trading in overbought territory for the past two weeks, the risk of a correction had increased and once the remaining buy orders from FOMO (fear of running) traders were filled, it took a point of strong American data to send it. significantly lower.
Under pressure from a stronger dollar and rising yields following a series of recent strong economic data in the United States, the market is once again focused on the risk that the Federal Reserve may consider tightening the market earlier than expected. Gold managed to recoup some of the earlier losses following Friday’s weaker than expected US nonfarm report.
From a technical standpoint, the loss of momentum below the 21-day moving average highlights the risk of further near-term weakness towards the 200-day moving average, currently at $ 1,841. If gold manages to rebound before reaching that level, let alone $ 1,825, the 38.2% retracement of the recent rally, this latest setback will be seen as a small correction in a strong uptrend.
Copper found itself near the bottom of the weekly performance chart, possibly the first time this has happened since the rally in commodities gathered pace around nine months ago. The recent slowdown had increased the risk of a deeper correction from financial investors focusing more on the development of short-term technical prices than on the long-term outlook which still points to higher prices with the possibility that inelastic supply will struggle to meet a recovery in demand, especially as electrification accelerates.
On top of that, some weakness in Chinese demand emerged with the LME’s key Yangshen copper premium falling to a four-year low, while in London the spread between spot copper and the LME contract. three months has traded in contango (excess supply) for three weeks. In addition, stock exchange-watched warehouse stocks have stabilized near a ten-month high, as speculators have reduced their net long positions by 63% since December.
However, while the appetite for short-term risk may have waned, the positive story has not suddenly disappeared, and we believe that buyers will come back sooner than expected to prevent the price from falling back to the line. trending from early October, currently at $ 4.18. Before that, additional support can be found in a five-cent range between $ 4.38 and $ 4.43.
Agriculture: Global food costs hit a new decade high in May, according to the FAO World Food Price Index, which rose 4.8% to an increase of almost 40% year-on-year. The index covering 95 price quotes showed an increasing trend in all five food groups led by sugar, oils and meat. The drought in South America, record purchases from China, and growing demand for biofuels have left the agricultural market ill-prepared for any further production shocks, hence the current intense focus on weather conditions in major parts of the country. growth of the northern hemisphere.
The pain of these increases, just like a decade ago, will hit some of the poorest import-dependent countries at a time when most are still grappling with the economic fallout from the pandemic. A positive note, however, is that while agricultural products have increased, wheat and especially rice, two of the most important staple foods in the world, have remained relatively weak.
High Protein Paris Milling Wheat trades 26% above its five-year average while Thai white rice, the Asian benchmark, trades just 12%. The latter take advantage of the fact that it is predominantly produced for human consumption while others also see the demand for livestock feed and biofuel production.
Source: TradeArabia press service