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Mid East Info
07-04-2025
- Business
- Mid East Info
Commodities Weekly: Tariff-led recession pain triggers sharp reversal
– Ole Hansen, Head of Commodity Strategy, Saxo Bank This past week, we saw a justified meltdown in risky assets as markets absorbed the blow of Trump's far larger than expected tariffs on all its major counterparts, sparking threats of retaliation and a broad selloff around the world on concerns that a global trade war on this scale and magnitude will drive an economic slowdown—not least in the US, where inflation forecasts have spiked, and sentiment among consumers and businesses has fallen sharply during the past couple of months. There is a general understanding of why Trump wants to reshape the global economy, with his primary goal being the reversal of a two-decade trend of US companies moving production overseas—especially to Asia—to capitalise on cheaper labour costs, which, in turn, has boosted their stock prices but contributed to domestic job losses and economic stagnation in certain sectors and parts of the nation. This shift has had significant impacts on American manufacturing and the broader economy, as well as its ability to be self-sufficient in key materials. Economic implications: short-term pain, long-term uncertainty What Trump delivered on this so-called 'Liberation Day' was an economic war declaration likely to cause chaos across global supply chains, while in the short term raising the risk of an economic fallout, hurting demand for key commodities, with energy and industrial metals being the sectors most at risk. While stock markets crumbled, investors sought shelter in secure government bonds, and for a change not in the US dollar, which normally acts as the go-to currency during times of heightened uncertainty. Instead, the euro, yen, and especially the Swiss franc have served as safe havens, while the US dollar weakened broadly. The narrative driving the US dollar lower is one of reduced portfolio allocations to the US as the policy will bring most disruption to the US economy in the near term. BCOM's year-to-date gain cut in half The Bloomberg Commodity Total Return Index (BCOM) trades down 4% on the week, and following a brutal week the annual gain has been cut in half. As per the table below, the growth- and demand-dependent sectors of energy and industrial metals suffered the steepest losses; the precious metal loss was limited by gold's resilience while the agriculture sector traded mixed to lower. On an individual level, major losses were recorded in crude oil and refined products, copper, silver, and cotton, while a handful of different commodities barely scraped even, led by natural gas, gold, corn, sugar, and not least wheat, the best performer benefiting from a weaker dollar. Gold's safe haven credentials grow despite setback Gold's safe-haven role temporarily received a setback with spiking volatility driving another burst of deleveraging similar to, but so far nowhere near the same scale seen during the early stages of pandemic panic back in 2020 when gold over a ten-day period slumped by 13% before recovering strongly as inflation worries and stimulus helped create fresh demand. Gold prices hit a record high on Thursday before the mentioned deleveraging helped drive a USD 100 correction. However, the combination of heightened global economic tensions, the risk of stagflation, a weaker dollar combined with collapsing US real yields as nominal yields fall and inflation expectations rise, will in our opinion continue to support bullion, and we maintain our forecast for gold reaching USD 3,300 this year. Adding to this a market that is now aggressively positioning for the Fed to deliver more cuts this year—at current count a full 100 basis points of easing by year end. The recent transfer of gold from around the world to US warehouses monitored by the COMEX futures exchange in order to get supplies behind a potential tariff wall may now see a part reversal after bullion was made exempt, potentially weighing on prices in the short term. Gold's correction from a fresh record has once again been relatively shallow with several key levels of support yet to be challenged. The most important in our opinion being an area around USD 2,950 which apart from being the February top also represents a 0.382 Fibonacci retracement of the run-up from late December. A rejection before and at this level would signal a very weak correction within a strong uptrend. Silver slumps on rising recession fears and COMEX indigestion Silver, meanwhile, was heading for an 8% weekly slump, with most of the damage being inflicted by economic growth concerns as silver derives around 50% of its demand from industrial applications. The weakness was led by selling in the New York futures market after a fact sheet distributed by the White House stated that bullion (gold) and 'other certain minerals that are not available in the United States' should not be subject to reciprocal tariffs. With silver and platinum imports accounting for the bulk of US consumption, traders concluded that these two metals would not be impacted, and with that, the tariff premium on futures prices in New York compared with spot prices in London collapsed, hurting an already weakened sentiment. A 51% year-to-date increase in silver flows to COMEX-monitored vaults now faces the risk of a partial reversal, potentially adding supply to a market already weakened by short-term recession concerns. In addition, prices were hurt by a collapse in the COMEX futures premium on speculation silver, just like bullion, would be exempt from tariffs after a fact sheet from the White House potentially hurting industrial demand which accounts for around 50% of silver's total demand. Thursday's slump most certainly qualified for its worst since December 2023, driven by a double whammy of economic worries hurting its industrious credentials, and not least a complete deflation of the COMEX futures premium after a fact sheet provided by the White House raised doubts about silver being included in tariffs. Silver's dramatic slump extended into Friday's session, and with gold holding steady around USD 3,100, supported by the dollar and yield slump, the gold-silver ratio has surged above 100 ounces of silver to one ounce of gold, the highest since 2020, potentially offering some relative value once the dust from this latest setback settles. In the short term, traders will focus on support just below USD 31, where we find the 0.618 retracement of the run-up since late December, as well as the 200-DMA and trendline from February last year. Crude prices tumble on recession risks and accelerated OPEC+ production hike Crude oil, meanwhile, was heading for its worst week in a year, with Brent crude tumbling more than 11%, in the process slumping through previous strong support in the USD 68 area. China's aggressive countermove to US tariffs, announcing their own 34% duties on US goods, with Europe likely to follow soon, all but confirms we are heading towards a global trade war—a war that has no winners, and which will hurt economic growth and, with that, demand for key commodities such as crude oil and refined products. At this stage, we have not only entered a demand destruction phase, but also supply destruction from high-cost producers, which over time will help cushion the fall. The weakness was further accelerated by an OPEC+ surprise decision to accelerate planned production hikes starting in May. To understand this strategy, it's crucial to examine the WTI forward curve, which is showing prices below USD 60 from next January and onwards. A recent Dallas Fed survey of US producers revealed that an average price of USD 65 is needed to profitably drill a new well. With crude oil prices under pressure, US production risks stalling sooner than anticipated, potentially allowing key OPEC+ members to regain lost market share. Partly or potentially fully offsetting this production increase are the impacts of sanctions and tariffs on countries like Venezuela, Iran, and Russia. These nations may struggle to maintain production in the coming months, providing an opportunity for GCC producers, particularly Saudi Arabia, the UAE, and Kuwait, to increase output and reclaim market share both within OPEC and globally. Copper increasingly exposed to a binary tariffs event The New York-traded High Grade copper futures reached a record closing high on Thursday at USD 5.1120 a pound, marking a culmination of a month-long surge that has triggered a major dislocation between US prices and the rest of the world. A development driven, not by strong fundamental demand, but mostly by a phenomenal arbitrage window that has been opened due to Trump's push for tariffs on imports of the metal. Ahead of a potential announcement of tariffs, a decision that could still be months away given the time an investigation carried out under Section 232 of the Trade Expansion Act normally takes, traders have been rushing copper to the US in order to log in premiums of up to 13% relative to prices in London, a move that has helped tighten the rest of the world where more than 90% of global demand is consumed. It's worth noting that holding a high-grade futures position at a 13% premium to London has raised binary risks in the market, meaning prices could suddenly drop by more than 10% if no tariffs are introduced or surge even higher if the level is 25%, in line with those applied on steel and aluminum. Crude oil: Range-bound despite growth concerns Crude prices have settled into a relatively tight range near the recent lows, weighed down by fears Trump's aggressive trade policies may trigger a global trade war that would negatively impact global growth and demand. In addition, the prospect of rising supply from OPEC+ next month has also been weighing on prices at a time when the US administration has been talking down oil prices, potentially, if successful, scoring a major own goal. We believe these concerns are overstated, not least considering the risk of lower output due to sanctions and several of the OPEC+ members having pledged additional cutbacks to compensate for exceeding quotas, a move that if carried out would offset the planned increase. Iran is once again in the crosshairs of the US administration after Treasury Secretary Scott Bessent recently said the US would ramp up sanctions on Iran, a producer that despite sanctions in the past four years managed to increase production by around 1.1 million barrels a day. A clear sign of that threat was seen this week when the US penalised a Chinese refinery and its CEO for allegedly buying Iranian oil. With this in mind, we see no major change in OPEC+ production in the coming months, instead a redistribution among its members with GCC producers being the main winners, allowing them to increase production without hurting prices. In addition, it has become increasingly clear that Trump's 'Drill, baby, drill' cannot be achieved without hurting output from high-cost producers, many of which are located in the US, and production growth will likely slow, thereby supporting prices while handing market share back to OPEC.
Bloomberg
02-04-2025
- Business
- Bloomberg
March madness for markets, but commodities climb higher
The Bloomberg Commodity Total Return Index (BCOMTR) had its best quarterly return in three years and the individual sectors all contributed positively except for grains which fell by 1%. The biggest outperformances came from natural gas and precious metals as the gold price pierced the $3000 mark for the first time. We also saw softs perform strongly with coffee rising 23%, and industrial metals where copper prices rose on tariff news. To start the year, the US had the highest seasonal amount of natural gas stored in 10 years as can be seen in Exhibit 2. The North American winter was expected to be mild but then January was unexpectedly the coldest month in the US going back to 1988. This created a spike in demand for natural gas used for heating buildings, leading to an increase in natural gas prices. Last year, there were record liquified natural gas (LNG) exports from the US as European and Asian buyers searched for alternatives to Russian gas. This also led to less domestic supply at a time when the weather shifted, and demand picked up. Storage levels have crept back to the middle of the 10-year range in March but are still below average at this point in the year. Another theme, which is only in its infancy, is the growing power needs from the tech sector. Despite the efficiency of new AI models like DeepSeek, the world will need more power as A.I. use increases in adoption and demand for energy sources like natural gas in turn will pick up as well. Copper prices in NY hit an all-time high as the US announced tariffs on copper imports may come in the second quarter. Copper prices in London rose by much less and rose on a similar path to gold over the quarter, which doesn't typically happen historically (Exhibit 3). Daily correlations over the last year rose to 50% but correlations over the last 15 years have been almost perfectly zero. Tariff news, and the search for safe haven diversifiers, in the first quarter drove both metals higher despite their historically different demand drivers. Will gold lose momentum after a tremendous move higher over the last two years? Could Copper break out if what happened in the 2000s repeats? There was one period when Copper doubled in price from 2005 to 2008 during the last commodity super cycle and this could be a playbook to follow this decade as well. With uncertainty for the markets ahead, this could be the year to diversify after a very strong 15-year period for US equities. Market participants are taking note, but so far positioning across commodities has been disparate with some sectors in favor over others. Exhibit 4 shows a clear bias toward market participants positioned for more upside in copper and gold while net short crude oil expecting lower prices from here. The last week of the quarter saw a reduction across net positions as traders lightened up exposure amidst the uncertain path forward for 2025. The precious metals sector, including silver, has strong tailwinds behind it but the energy sector is out of favor at the moment. This could switch on a dime if inflation picks up (the energy sector has the highest inflation beta of any commodity sector historically) or if there is an uptick in geopolitical tensions particularly in key oil producing regions. Closing out the first quarter of 2025, we have already experienced a news-filled year despite only 60 trading days for the major commodities markets. At this point in the cycle, diversification is key, and the most recognized alternative asset class backed by the most history is commodities. Broad commodities have outperformed so far rising 9% as other asset classes are in free fall. Will this continue through 2025? During periods where risk assets move lower together in a correlated matter, turning to uncorrelated asset classes like commodities to diversify could be the right move if the March madness in markets continues the rest of the year.
Mid East Info
21-02-2025
- Business
- Mid East Info
Commodities Weekly: Energy market strength and Trump rhetoric fuel ongoing surge- Saxo Bank
'There are decades where nothing happens; and there are weeks where decades happen' is a quote often attributed to Vladimir Lenin. Whether or not it originated from him, it aptly describes the recent and rapid changes initiated by the Trump administration in Washington. In our most recent Commodity Weekly , which highlighted how broad strength had driven the commodities sector to a +2-year high, we outlined several reasons for maintaining our long-term positive outlook for commodities. Several factors, including deglobalisation, increased defence spending, de-dollarisation, and concerns over debt and fiscal stability, have been reinforced by recent developments in Washington. President Trump's inward focus and attempts to 'Make America Great Again' are likely to drive other parts of the world in the opposite direction. The failure to generate growth through his preferred use of tariffs may ultimately result in losses for everyone, while potentially emboldening non-democratic regimes globally. With this in mind, the near future points to heightened uncertainty. So far, commodities have emerged as one of the winners amid increased demand for key raw materials, which could face supply challenges. This past week, the Bloomberg Commodity Total Return Index reached a fresh 27-month high, with the year-to-date gain at one point exceeding 10%, before some end of week profit taking began to emerge. This performance comfortably outpaces the US stock market, where the S&P 500 Index despite reaching a fresh record has only managed a gain of 3.4% so far this year, while the MSCI World Index trades up around 4.5%. On the week, the most notable observation was the opposite forces seen in US and European natural gas prices, with US futures trading sharply higher in response to strong winter heating demand and LNG exports hitting record highs. In Europe, meanwhile, the price of the Dutch TTF benchmark slumped to a one-month low below EUR 50/MWh, with traders focusing on developments in Ukraine, incoming mild weather reducing demand, and record US LNG exports offering some relief. In the past couple of weeks, the spread between the two regional-focused futures markets narrowed by 27%; however, the price European and Asian consumers and industries pay compared with their US counterparts is still more than three times higher. Crude oil remains stuck in the middle The two major crude oil benchmarks in New York and London were heading for their best weekly gain since early January, and at this time, we believe the market has adopted a relatively neutral but nervous stance on prices, with Brent trading near the middle of our expected range for the year between USD 65 and USD 85. Supply is in some places being disrupted, with the most recent being Kazakh output after a Ukrainian drone attack on Russia, while potentially increased elsewhere. Most notably, the prospect of a resumption of exports from Iraq's Kurdistan region through the Iraq-Ceyhan connection, a pipeline which, prior to being halted in 2023, transported about 450,000 barrels a day. In addition, the market also has to deal with an increasingly erratic message flow from Washington, which on one hand has raised the prospect of increased US production, while on the other causing concerns about the outlook for global growth and demand. To top it all off, we are also waiting for an OPEC+ decision on output; however, with limited clarity on the impact of current US threats and policies, as well as the outlook for key producers such as Russia and Iran, we believe the group is likely to tread with caution, leaving production unchanged while once again reiterating the need for compliance. Copper stock build point to short-term top The tariff-led squeeze in New York traded copper prices culminated last week when the High Graded futures prices spiked above USD 4.8 per pound, a nine-month high, in the process widening the premium in New York over London to near 50 cents per pound or more than USD 1,000 per tonnes using the London quotation. Since then prices have started to drift lower with the premium narrowing to 27 cents per pound, still elevated compared with normal difference around 5-10 cents. Meanwhile, copper stocks held at warehouses monitored by the three major futures exchanges have seen a strong build-up in the past three weeks, with the total hitting a five-year high this week at 616.4k tonnes. Inflows to LME (+12.5k) and SHFE (29.8k), while COMEX saw a small reduction of 2.4k tonnes. Events highlighting the risk, recent price actions have been mostly about COMEX-related buying to preempt tariffs, more than actual end-user demand, raising the risk of a short-term top in the market. Silver keeps pace as gold consolidates ahead of USD 3000 Bullion's rally extended to an eighth week, with underlying momentum and 'fear of missing out' being mixed with continued end-user demand from central banks and individual investors seeking protection against a world looking increasingly unstable, with President Trump spewing out statements faster than they can be fact checked while he attempts to break down the world order that has been in place for decades, driven by his inward-looking focus. This past week, spot gold reached a fresh record high near USD 2,955 per ounce before reversing lower on long-awaited profit-taking, potentially triggered by US Treasury Secretary Scott Bessent dismissing speculation that the government would revalue its bullion holdings from USD 42.22 per ounce to market value—a move that would increase the collateral value of the Treasury's gold reserves by around USD 740 billion. We maintain our bullish price outlook and note silver has managed to keep up with the latest rally in gold, amid continued concerns about how tariffs would impact metals traded on the COMEX metals market in New York. In the past week, we have seen premiums in New York over spot prices in London starting to ease, but while bullion traders can go to the Bank of England to lease gold as a lender of last resort, silver does not have this option, leaving it more exposed; hence the still elevated and overall price-supportive premium in New York. Several of our long-term drivers for commodities strength, some of which are mentioned above and in this update , directly impact investment metals. The most important being de-dollarisation demand from central banks, fiscal debt concerns, and geopolitical tensions. Having rallied almost non-stop since mid-December, gold can correct lower by more than 100 dollars to USD 2,818 without damaging the overall bullish setup. This past week, we even saw demand for bullion-backed exchange-traded funds heading for their biggest weekly rise in holdings since 2023, a sign that investors are increasingly prepared to pay up in order to get exposure to a rally that has set its sails towards USD 3,000, and most likely beyond. However, in order for that to occur, the market will be keeping an eye on incoming US data and whether recent weakness will continue to spread, potentially raising the prospect for rate cuts while softening the dollar.
Mid East Info
19-02-2025
- Business
- Mid East Info
Commodities Report: Crude, Gold, and Grains See Mild Profit Taking
Commodities: Six weeks into 2025, the commodities sector remains strong, with the Bloomberg Commodity Total Return Index trading at a 25-month high and showing a year-to-date gain of 7.7%, outperforming both the S&P 500 and the MSCI World Index by a decent margin. What is particularly notable so far is the broad nature of the rally, with all sectors showing gains, led by softs and precious metals. The top five BCOM members are Arabica coffee (+29.5%), US natural gas (+16.7%), HG copper (+14.7%), silver (+13.4%), and gold (+10.4%). Part of the strong performance in the mentioned metals market, which are all based on New York futures prices, is due to recent squeezes amid fears over the impact of US import tariffs on key metals, which also include platinum. Last Friday, for example, the High Grade futures in New York surged to a nine-month high of 483 cents per pound, reflecting a 47-cent premium per pound or USD 1000 per ton over the corresponding price on the London Metal Exchange. Considering this spread in 'normal' times trades below 10 cents, it highlights upward pressure on prices in New York, which, for growth- and demand-dependent metals like copper and platinum, may not reflect their underlying fundamentals, which remains relatively soft for now. Responding to the mentioned broad price strength, managed money accounts, which include hedge funds and CTAs, turned very strong buyers during December and January, driving up the net long across 27 major futures contracts to levels last seen in June 2022, near the end of the pandemic- and stimulus-led rally that saw the BCOM index more than double. However, in the last couple of weeks, some mild profit-taking has started to emerge, primarily driven by selling of crude oil, gold, soybeans, and corn, and only partly offset by renewed demand for natural gas, copper, and wheat. Forex: In the forex market, speculators sold USD at an accelerated pace, leaving the gross long versus eight IMM futures down 15% on the week but still at an elevated level of USD 26.5 billion. All the major currencies, except EUR, saw net buying, led by strong demand for JPY, which lifted the net long by 191% to a four-month high at 55k contracts. However, besides the JPY, only a small net long was held in MXN, while the remaining currencies continued to be traded with a short bias, most notably CAD and EUR.
