Commodity markets saw the first broad based bounce in weeks after the early May correction now seems to have run its course.
Weak U.S. data helped remove some of the recent support for the dollar, with the Euro bouncing despite heightened tension over what will happen to Greece in the months ahead. European stock markets have fallen victim to this uncertainty with the benchmark Euro Stoxx 50 Index dropping 7.5% from recent highs during the week, before recovering. For now though, the market believes the political will to find solutions is strong enough to help avoid any further escalation.
With the dollar having stopped strengthening commodities began to recover. This was helped by some investment banks raising their end of year price forecast for Brent crude but also because weather continues to play havoc with prospect for this autumns harvest from China to Europe and the U.S.
The CRB at the time of writing this, headed for its second weekly gain with investors slowly dipping their toes back into the market. Silver, the main casualty of the recent sell off, has been the star performer this week.
Raised crude oil price forecast
After testing the lows once again, the energy market got a boost from a rebound in the Euro and escalating violence in Libya and Yemen. Two major investment banks added to the positive sentiment by raising their price forecast for Brent crude, expecting it to return to the $120 to $130 range with the risk of overshooting to the upside. With all of the four major commodity banks now all looking for higher prices, one analyst said that being negative on oil was “as difficult as managing Chelsea football club”.
After testing the lows once again, the energy market got a boost from a rebound in the Euro and escalating violence in Libya and Yemen. Two major investment banks added to the positive sentiment by raising their price forecast for Brent crude, expecting it to return to the $120 to $130 range with the risk of overshooting to the upside. With all of the four major commodity banks now all looking for higher prices, one analyst said that being negative on oil was “as difficult as managing Chelsea football club”.
Despite seeing activity in OECD nations slowing somewhat the banks continue to see strong demand from EM countries more than making up for this slack. With Saudi Arabian oil being of a heavier quality than the lost output from Libya, there is a risk of spare capacity being run down to critical levels. Only a rise in the price of oil to levels where demand begins to be impacted can halt this slide and prevent demand outstripping supply into 2012.
After the initial rally off the lows traders might be reluctant to take Brent and WTI crude much higher from current levels. The Eurozone issue is bound to continue to yield market unfriendly headlines and until we see where the dollar is going, playing the range seems to be the most favoured trade.
Euro-gold reaching a new record
Gold and silver have benefitted from the heightened tension in the Eurozone with the price of gold in Euros reaching a new record during the week. At one stage it rallied together with the dollar, which is a sign that Euro woes were the main driver. Some producer selling in both silver and gold was seen which halted the rally, at least for now. Strong Chinese demand over the coming years, as forecast by the World Gold Council, also continues to add support.
Gold and silver have benefitted from the heightened tension in the Eurozone with the price of gold in Euros reaching a new record during the week. At one stage it rallied together with the dollar, which is a sign that Euro woes were the main driver. Some producer selling in both silver and gold was seen which halted the rally, at least for now. Strong Chinese demand over the coming years, as forecast by the World Gold Council, also continues to add support.
Silver put in a strong performance and has now managed to retrace 38.2% of the selloff from the highs set back in April. Daily swings are still quite dramatic and that is one of the reasons why silver may struggle to reconnect with investors who got burned during the violent selloff.
The above chart shows the daily ranges as a percent of the price and it is clear to see why silver has become very difficult to trade with daily average swings more than double of what we see in gold. An investor in silver therefore needs to be prepared to suffer some pain before eventually getting it right. This is also one of the reasons why ETFs have become very popular as an investor will be in on a one for one basis compared to the leveraged nature of futures.
Russia might resume wheat exports
The Russian government has indicated that it might allow exports of wheat to resume as early as July, in order to free up storage space ahead of the upcoming harvest. A bumper crop due to increased acreage, weather permitting, is expected to yield between 85 and 90 million metric tonne, some 40% more than last year. The reaction has so far been muted as traders still have a vivid memory of the drought that hit Russia and Ukraine last year and substantially reduced production.
The Russian government has indicated that it might allow exports of wheat to resume as early as July, in order to free up storage space ahead of the upcoming harvest. A bumper crop due to increased acreage, weather permitting, is expected to yield between 85 and 90 million metric tonne, some 40% more than last year. The reaction has so far been muted as traders still have a vivid memory of the drought that hit Russia and Ukraine last year and substantially reduced production.
Milling wheat hits a new record as drought continues
This news comes as a relief to consumers in Europe as the worst drought to hit France, Germany and the U.K. for decades has seen the price of new crop milling wheat rally strongly during May to a new record of 254.50 Euros per metric tonne.
This news comes as a relief to consumers in Europe as the worst drought to hit France, Germany and the U.K. for decades has seen the price of new crop milling wheat rally strongly during May to a new record of 254.50 Euros per metric tonne.
Meanwhile delays due to wet weather continue in the northern U.S. and Canada with farmers struggling to get especially wheat into the ground. As of last Sunday only 54% of spring wheat had been planted, well behind the average of 85% for this time of year. Corn farmers are contemplating switching to soybeans unless a window of opportunity arises within the next couple of weeks. Some 20% of the corn crop has yet to be sown and farmers may either cash in on their insurance or move to soybeans which can be planted until the end of June.
Livestock prices under pressure ahead of barbecue season
At the bottom of the performance scale we have live stock such as hogs and cattle. Prices has tumbled recently due to weak beef demand, fund selling and higher slaughter rate as dry weather has left cattle with little grass to graze. The weak demand has come from a slow start to the barbecue season as wet weather elsewhere has left men without a good excuse to hang around the barbecue.
At the bottom of the performance scale we have live stock such as hogs and cattle. Prices has tumbled recently due to weak beef demand, fund selling and higher slaughter rate as dry weather has left cattle with little grass to graze. The weak demand has come from a slow start to the barbecue season as wet weather elsewhere has left men without a good excuse to hang around the barbecue.
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