Traders and investors saw one of the most difficult and volatile weeks for many months as risk adversity ruled. Everyone has been trying to come to terms with the economic impact of the earthquake in Japan and continued geopolitical concerns in MENA.
At the end of this incredible week the G7 started joint intervention for the first time since 2000 in order to weaken the Japanese yen, which had been rallying 8% to a new record high versus the dollar. The United Nations Security Council authorised the use of force to protect civilians in Libya and China added to the general state of confusion by throwing in another 0.5% rate rise.
How all this will impact prices over the coming weeks remains to be seen. As an overall observation there is no doubt that the speculative length of many different commodities from crude to corn has seen a sharp reduction during the first part of the week, thereby actually leaving the market in a better position to react to future events.
Natural gas best performer
At the time of writing this the DJ-UBS commodity index is small up on the week, a marked improvement from just a few days ago where every single commodity, shown in the table below, was in the red. Natural gas has been the best performer as it is pricing in extra demand from Japan as the devastated country seeks alternatives to nuclear power. Up to 25% of Japan’s nuclear capacity has been affected by the earthquake and tsunami and Japan will have to import energy to make up the shortfall.
At the time of writing this the DJ-UBS commodity index is small up on the week, a marked improvement from just a few days ago where every single commodity, shown in the table below, was in the red. Natural gas has been the best performer as it is pricing in extra demand from Japan as the devastated country seeks alternatives to nuclear power. Up to 25% of Japan’s nuclear capacity has been affected by the earthquake and tsunami and Japan will have to import energy to make up the shortfall.
Coal and carbon prices higher
Staying with energy we also saw a move up in coal prices on the back of expectations of increased Japanese demand while European carbon emission futures rallied with Germany’s decision to suspend some ageing nuclear power plants. This will increase the European CO2 emission in the near term as the dirtier alternative being coal will require power plants to buy extra allowances.
Staying with energy we also saw a move up in coal prices on the back of expectations of increased Japanese demand while European carbon emission futures rallied with Germany’s decision to suspend some ageing nuclear power plants. This will increase the European CO2 emission in the near term as the dirtier alternative being coal will require power plants to buy extra allowances.
Rice crops affected
The price of rough rice has also been impacted as farmers in some rice growing areas in northern Japan might be unable to plant crops after the tsunami swept salt water six miles inland. Added to this is concern about the potential risk of soil contamination from radiation, which has also helped support the price.
The price of rough rice has also been impacted as farmers in some rice growing areas in northern Japan might be unable to plant crops after the tsunami swept salt water six miles inland. Added to this is concern about the potential risk of soil contamination from radiation, which has also helped support the price.
Copper strong; platinum and palladium weak
Copper also recovered strongly with investors returning after a 12% correction during the past month. The Chinese rate hike Friday however highlighted the potential risk of reduced demand from the world’s largest consumer as it tries to reign in lending and bring inflation under control.
Copper also recovered strongly with investors returning after a 12% correction during the past month. The Chinese rate hike Friday however highlighted the potential risk of reduced demand from the world’s largest consumer as it tries to reign in lending and bring inflation under control.
At the other end of the performance table we saw weak performances from platinum and palladium. This was on the back of potential negative demand effects from Japan where car production has been suspended at several plants since last Friday. Japan has a preference for gasoline driven vehicles and with palladium being used as the catalytic converter for this it has suffered more than platinum which is used in diesel vehicles.
Brent crude rally
Energy markets returned to form late in the week as the focus returned to the supply side with fears over Libya and Bahrain triggering a near 10 dollar rally in Brent crude prices. Earlier in the week, worries about demand destruction in the wake of the earthquake had speculators heading for the exit with the speculative long position expected to have been reduced in the process.
Brent crude rally
Energy markets returned to form late in the week as the focus returned to the supply side with fears over Libya and Bahrain triggering a near 10 dollar rally in Brent crude prices. Earlier in the week, worries about demand destruction in the wake of the earthquake had speculators heading for the exit with the speculative long position expected to have been reduced in the process.
Despite Gadhafi having regained control over most of Libya it is not expected that oil supplies will begin to flow anytime soon. Foreign oil workers will be reluctant to return for some time and UN led sanctions could lead to a boycott of Libyan oil. Meanwhile, the unrest in Bahrain continues with Saudi soldiers having been sent to help in the crackdown on anti-government protesters. Considering this is taking place not far from the biggest oilfields in Saudi Arabia it has definitely got the world’s attention.
Volatility will stay high in the days and weeks ahead with uncertainty related to both the demand and supply side making it difficult to predict price movements. The dollar has resumed its recent weakening trend and this combined with gains in equities should help commodity prices to recover.
Gold and silver recovery
Gold and silver have also managed to recover from their recent setbacks as the tension in MENA outweighed the move towards risk reduction on the back of Japan. The sector has also been supported by rising inflation with U.S. consumer prices gaining 0.5% on a surge in energy and food prices.
Gold and silver have also managed to recover from their recent setbacks as the tension in MENA outweighed the move towards risk reduction on the back of Japan. The sector has also been supported by rising inflation with U.S. consumer prices gaining 0.5% on a surge in energy and food prices.
Agricultural bouncing after sell off
The agricultural sector has seen a very dramatic sell off with especially wheat (-33%) and corn (-18%) being sold heavily before buyers returned. The commitment of trader’s data will undoubtedly reveal a dramatic reduction in the speculative long positions and this has left the market in a better position to react to fundamental news flows.
The agricultural sector has seen a very dramatic sell off with especially wheat (-33%) and corn (-18%) being sold heavily before buyers returned. The commitment of trader’s data will undoubtedly reveal a dramatic reduction in the speculative long positions and this has left the market in a better position to react to fundamental news flows.
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