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Strong fundamentals push Palladium price to record high

20 Feb 2020

Palladium prices are on a tear, as safe-haven demand coupled with forecasts of a widening deficit supports its record-breaking rally. Palladium’s demand outlook (nearly 80%) is closely linked to the automotive market, used heavily in catalytic converters in gasoline powered vehicles, while car sales in China declined 20% year on year in January 2020, according to China Association of Automobile Manufacturers. Tighter emission standards, particularly in China, which is dominated by gasoline powered vehicles, have offset this as higher loadings of palladium are required to achieve this.  Palladium’s sister metal, Platinum, used in auto catalysts in diesel powered vehicles, has been left behind in the price rally, rising only 3.87% in 2020 compared to 39.3% for palladium in 2020 (as of 19 February 2020). So far, palladium’s substitution with platinum has been muted in auto catalysts despite the wide price gap.

 

Source: Bloomberg, WisdomTree as of 19 February 2020.

Historical performance is not an indication of future performance and any investments may go down in value.

Gold at a seven-year high

19 Feb 2020

Gold is trading near a seven-year high as coronavirus fears continue to drive investors towards the historically safe-haven asset. Coronavirus deaths in China topped 2,000, while there have been 2010 deaths worldwide. Globally there have been over 75,000 cases of the disease. Equity markets appeared to be brushing off the effects of the virus, until yesterday when Apple Inc reported that its earnings will take a beating as the virus damages supply chains. Representing close to 5% of the S&P500, the single company has an outsized weight on investor sentiment. Gold is a natural port of call in times of investor anxiety. Closing above the psychologically important US$1600/oz for the first time in seven years, gold is showing its mettle in times of uncertainty.

 

Source: Bloomberg, data as of 19/02/2020.

Historical performance is not an indication of future performance and any investments may go down in value.

China’s central bank injects liquidity to counter coronavirus related slowdown

17 Feb 2020

China’s central bank has provided medium term funding to commercial lenders and cut the interest rate it charges in trying to cushion the economy from the virus epidemic. Chinese equity markets also gained in lockstep with global equity markets. The People’s Bank of China has offered 200 billion yuan ($29 billion) of one-year medium-term loans. The interest rate was lowered by 10 basis points to 3.15%, the lowest since 2017. The central bank has also pumped 900 billion yuan into the financial system via reverse repurchase agreements (reverse repos) to offset the impact of reverse repos maturing and to maintain ample liquidity in the banking system.

 

Coffee takes a roller coaster ride

17 Feb 2020

Between October and December 2019, Arabica coffee gained 45%. It then gave up almost all of these gains by the beginning of February 2020. The agricultural commodity is now up 11% since the beginning of the month.  Cold weather in parts of Cerrado region in Brazil, an important region for coffee’s supply, is threatening frost damage. The Federation of Coffee Growers in Cerrado have forecasted coffee in the region to be less than 6mn bags, down from a potential of 7.5mn bags.

 

Gold continues to make gains

17 Feb 2020

Gold remained strong closing last week around $1584/oz as investors remained wary of the threat of coronavirus to global economic growth and financial markets. Speculative positioning on gold futures exchanges, a litmus test for strong demand for haven assets, rose last week and continues to remain meaningfully elevated compared to historic levels.

 

Oil bounces back into backwardation

17 Feb 2020

Oil prices surged last week following considerable declines in the week before potentially on the back of easing coronavirus concerns. The front end of the Brent futures curve is back in backwardation knocking out the contango up to 2022. West Texas Intermediate (WTI) is now in backwardation between June 2020 and end of 2022. Oil prices rose last week in defiance of deeper cuts in demand forecasts by the International Energy Agency (IEA) and the US Energy Information Administration (EIA).

 

Trade wars hiccup as US indicts Chinese officials

17 Feb 2020

At the start of last week, the US Department of Justice (DOJ) indicted four members of the Chinese military for their alleged role in stealing data from credit reporting firm Equifax in 2017.  Towards the end of the week the DOJ announced an investigation into Huawei for allegedly engaging in stealing intellectual property from US firms.

US stocks make gains on potential coronavirus stabilisation

17 Feb 2020

Stocks gained for a second week in a row on the back of some encouraging data with regards to the spread of coronavirus stabilising. The World Health Organisation also soothed fears when it said new cases outside Hubei were falling after allowing for the adjustment in reporting standards while the mortality rate in China outside Hubei (0.4%) was no higher than in other countries.

 

Coronavirus disruption to Chinese economy driving oil price weakness

12 Feb 2020

The recent oil price correction is being impacted by fears of demand destruction which are running ahead of the supply response. The coronavirus outbreak has shifted the Chinese and global economic outlook lower which is having a negative impact on the commodities outlook in 2020. The impact on the oil market looks deeper despite the possibility of further production cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and its partners, as the Chinese government’s measures are amounting to a major shutdown of its economy which could drive much weaker oil balances. With passenger transportation by road, rail, and air down as much as 70% for some weeks, followed by a slow recovery, this could be a temporary but large curtailment of China’s oil demand levels for jet, gasoil, and gasoline.

 

Short and leveraged investors were bearish on equity and bullish on oil in January

12 Feb 2020

Short and leveraged investors took net bearish positions on global equities across a wide range of developed and emerging markets in January. Investors added considerable leveraged short positions in USA equity during the month. US stocks continued to show strong bullish momentum in January despite growing concerns about the unpredictable impact of coronavirus on global growth and markets.

During January, short and leveraged investors also took bullish positions in oil by closing several leveraged short positions and adding meaningful new long positions. Oil prices plummeted during the month as tensions between US and Iran subsided and demand concerns grew on the back of coronavirus.