Weakness in the dollar following the Fed $600 billion Treasury purchase program yesterday has been boosting the commodity sector across the board today, with Nymex light sweet crude managing to top a 6-month high around $86/bbl, and holding not far from the year’s peak seen in spring.
Commodities are also seeing gains in-kind with the equity markets as risk appetite begins to flow following the Fed announcement, and volumes are once again picking up, now players know exactly what the Fed will be doing, although tomorrow's US non-farm payroll number is still causing some to hold back form entering the market.
The move in crude came despite a surprise 2 million barrel (mbls) increase in crude stocks for the week ending October 29, according to the latest inventory report from the Department of Energy (DoE) – counter to the previous day’s large decline in crude stocks reported by the American Petroleum Institute (API).
The DoE reported a more bullish move in products, with gasoline inventories falling 2.7mbls and middle distillates falling 3.6mbls. At the same time the report showed crude imports for the week fell by 0.9mbls, and refinery utilization dropped almost 2 percentage points to 81.8%.
The precious metals complex came under a fair amount of pressure before the Fed announcement yesterday, as uncertainty and the potential dollar impact led gold and silver particularly, to underperform.
The move has now allowed the complex to rally today however, with weakness in the greenback following the QE announcement the main catalyst for the move. Despite the strong selling yesterday, spot gold did manage to close just above the 21-day moving average around $1,349/oz, which today once again underpins support for the rate from a technical perspective.
Now the Fed announcement is out in the open, gold looks set to test all time highs in the near-term around $1,387/oz while it holds above this level, and today sees 10-day momentum once again pushing into uptrend territory.
Base metals have followed their more precious counterparts today, as a weak dollar and buoyant equity markets help benchmark prices: copper gaining around 2%, zinc up 3% and aluminium at its highest level since April around $2,450/tn.
The Baltic Dry Index is managing to make a slight bounce following a strong sell-off yesterday, reflecting the recent reductions in steel production from China following the country’s energy saving efforts. The country also reported this reduction reflected in its demand for iron ore and coal, with Chinese ports reporting reduced levels of both of these key steel-making commodities.
Iron ore swaps did however see strong gains in Asia overnight amid concerns of tightening supply from India, with the country’s shipping of ore to China falling in recent months. This has come predominantly from the country’s southern state of Karnataka, after they banned iron ore exports in late July in a crackdown on illegal mining in the region.
In the agricultural sector, Cocoa shipments at Ivory Coast ports were 20% lower in October than a year ago, as producers are holding back supply to enforce higher prices due to expectations of a strong rise in production for this crop year.
The latest commitment of traders report from the commodity futures trading commission last week, also showed a large overhang of speculative short positions in the cocoa market, now leaving price action as a test of wills between speculators and cocoa producers.
Also in the soft sector, and coming as a knock-on consequence of a move in the equity market, the 1-week pursuit of Potash (NYSE:POT) by the Australian miner BHP Billiton (NYSE:BHP) hit what may prove to be a fatal hurdle yesterday, after the Canadian government all but denied them the right to make the move. This takeover has had some speculating in recent weeks that it would eventually lead to a high fertiliser costs, as effectively some competition would be removed from the market while at the same time, corporate costs may need to be passed on.
With the Canadian governments refusal to allow the move, this may now no longer be the case.
Disclosure: No position