Head of Commodity Strategy
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Trade war concerns, a stronger dollar and signs of an economic slowdown among key EM countries, led by China, continued to take its toll on money managers' appetite for commodities last week. During the week to June 26 net-selling was seen in 19 out of the 24 futures contracts tracked in this update and following four weeks of continued selling the combined net-long has fallen by 617,000 lots to 1.3 million, the lowest since January 2.
The only contract seeing noticeable buying was WTI crude with the story otherwise being the continued selling of gold and copper and not least the three major row crops of corn, soybeans and wheat.
Crude oil was mixed during a week which saw the spread between WTI and Brent collapse while the WTI prompt spread surged. Both of these events were triggered by a supply outage from Canada which may last through July and support a continued tightening at Cushing, Ok., the delivery hub for WTI crude oil futures. As a result the Brent net-long was cut by 1% while bullish WTI crude oil bets jumped by 25% to 391k lots, a 7-week high. A collapse in the WTI crude oil gross-short to just 20k, at 6-year low, lifted the long/short ratio to almost 21, a 7-year high.
Funds cut their gold net-long by 82% to just 4,000 lots, a 17-month low. The continued capitulation was driven by the biggest two-week jump in the gross-shorts since November 15 as the technical outlook deteriorated below $1,285/oz. The silver net-long exceeded that of gold for the first time since March 2017.
HG Copper longs capitulated in response to a deteriorating macroeconomic outlook led by fears of a Chinese slowdown driven by trade wars and slowing credit growth. The net-short in platinum meanwhile hit a fresh record of 26,000 lots.
The grains sector witnessed another week of heavy selling with funds now once again holding a short position in all of the three major crops. Trade war concerns (US corn to Mexico and soybeans to China) and improved US growing conditions helped create a perfect storm of negative price pressure during June.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
