To say that Greece and China are developing into 'hot spots' would be an understatement at this point because Greece is already a disaster and China is quite fragile at this point. In both cases, politicians and regulators are playing far too great a role in the day-to-day operations of markets and this interference on their part has weakened markets and opened the door for some serious issues to arise once they (the regulators and politicians) back away from the controls.
Knowing where to start this morning is tricky because while gold and silver are hanging near breakeven, platinum is down sharply. The rest of the commodity complex is also down, with energy looking real ugly and copper deciding to make the move big fall below $2.60/pound this morning. It is quite ugly out there this morning and as bad as the physical commodity markets look, expect to see the equity markets look just as bad for commodity related equities.
Chart of the Day:
While a number of commodities are trading sharply lower today, it is the RBOB market which is grabbing our attention after copper. What had been a strong play ahead of the holiday weekend is now seeing profit taking as traders shy away from risk-on trades until everything is sorted out in Europe and China. We still think that gasoline can be used as a hedge, but in smart ways, not just as a buy and hold because this move below $2/gallon is going to scare many.
Commodity prices are as follows (at time of submission):
- Gold: $1,164.20/ounce, up by $0.70/ounce
- Silver: $15.57/ounce, up by $0.008/ounce
- Oil: $54.22/barrel, down by $2.71/barrel
- RBOB Gas: $1.9725/gallon, down by $0.0618/gallon
- Natural Gas: $2.744/MMbtu, down by $0.078/MMbtu
- Copper: $2.536/pound, down by $0.095/pound
- Platinum: $1,065.30/ounce, down by $18.70/ounce
Potash Corporation of Saskatchewan (POT) is regrouping after being rebuffed by Germany's K+S. Potash says that it is interested in moving forward with its bid and many believe that the company will be undeterred as it seeks to expand internationally and lock up production and new markets for the years ahead. With the Eastern European production cartel having fallen apart, it certainly seems that it is up to the North American producers to hold the market together and keep a tight lid on both production growth and supply that is on the market.
Thus far, Potash has done a good job of explaining its plans for the combined company, something that Monsanto (NYSE:MON) has failed at miserably with its proposed European takeover. We still think that if one of those two companies is going to move forward with an acquisition that it will be Potash and not Monsanto.
Copper Market Is Ugly
The copper market has become very inhospitable in a short period of time, with prices falling nearly $0.10/pound this morning on the news from Greece. This shows a belief that the market is heading lower on demand issues and that economic growth is going to be weak moving forward as Europe is forced to look at Greece's debt more closely. What many are not talking about yet, and what could become a key story for the market moving forward, is how other European countries will view a Greek bailout. Iceland and Germany will obviously not be fans, but Spain, Italy and others could view this as an opportunity to also receive bailouts on new terms.
We are nearing 52-week lows for copper, and with many looking for world growth to ramp up, that is certainly not a good indicator of future prospects.
It is that thinking which has investors focused on worldwide growth worried this morning and could be a key reason that copper is taking such a beating. With copper down sharply this early in the morning, look for Freeport-McMoRan (NYSE:FCX) to also trade lower on the session, with a sub-$18/share move absolutely possible.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.