🔴 LIVE: The Secrets of ProPicks AI Success Revealed + November’s List FREEWatch Now

Commodities And FX: Global Macro Currents

Published 09/24/2015, 03:14 AM
Updated 07/09/2023, 06:31 AM
USD/MXN
-
JPM
-
VOWG
-
USD/BRL
-
USD/MYR
-
CL
-
NG
-
PA
-
OJ
-
PL
-
VOWG_p
-
BR10YT=XX
-
  • Oil and natural gas prices remain under pressure
  • Other commodities, even orange juice, are weak
  • Some commodity trends look deflationary, and that's how bond markets see it
  • Brazilian real at record lows
  • Palladium up, platinum down on Volkswagen (XETRA:VOWG) crisis
  • The latest data from the US shows crude inventories lower than expected and production continues to fall.
    US oil production and imports

    While the above is a bullish sign, US refinery inputs are falling as seasonal maintenance picks up and is expected to take more refinery capacity offline than usual.
    US crude oil refinery inputs

    Moreover, the government report showed higher than expected levels of gasoline in storage.
    US gasoline stocks

    The combination of weaker refinery inputs and higher gasoline inventories sent crude prices lower.
    Crude oil prices

    Source: barchart

    Over the intermediate term, crude oil prices are projected on average to stay below $60/bbl by sell-side analysts.
    Banks' oil price projections

    Source: @georgikantchev, WSJ

    Weakness in energy prices is not limited to crude oil. US natural gas futures are pricing in warmer temperatures this winter (and plenty of supply).
    US natural gas futures

    Source: barchart

    Now let's look at key developments in a number of other commodity markets. First, we have the Volkswagen (XETRA:VOWG_p) contagion into the commodities markets. Platinum is used for diesel engines while palladium for gasoline engines. Since the Volkswagen fiasco will diminish diesel auto production (which is likely to be replaced by competitors' gasoline autos), we have the following divergence.
    Palladium vs Platinum prices

    Source: @SoberLook

    Orange juice futures fell more than 4% on strong Florida crops and a falling Brazilian real. The Dukes are not happy.
    Orange juice futures

    Source: barchart

    The Duke brothers Randolph (Ralph Bellamy) and Mortimer (Don Ameche), commodity traders in the 1983 American comedy film Trading Places., who commit all their holdings to buying frozen concentrated orange-juice futures.Source: Business Insider

    Clearly some of the commodity trends look deflationary. At least that's how the bond markets interpret the situation. US 5-year forward breakeven inflation expectations are at the lowest level since 2010. Will the Fed ignore this in December?
    US inflation expectations 5 years ahead

    Now let's turn to emerging markets (EM) currencies where in spite of some central-bank interventions, the selloff continues. Mexico's central bank sold dollars to try stabilizing the peso. The intervention was not successful, as the peso again approaches a record low vs. the dollar.
    US dollar/Mexican peso

    Source: barchart

    The Malaysian ringgit hit another low as US authorities investigate allegations of corruption involving Prime Minister Najib Razak. Apparently some shell companies were used to buy US properties to move the prime minister's "family money" out of Malaysia.
    Dollar/Ringgit

    Source: barchart

    Brazil's central bank also intervened in the FX market to prop up the real. Once again there was little success as the currency continued to fall to record lows.
    Dollar/Brazilian real

    Source: barchart

    The overall JPMorgan (NYSE:JPM) EM Currency Index hit fresh lows.
    JPMorgan EM currency index

    Source: @MetricAdvisors

    Related to the above, there were more losses for Brazilian government bonds. Here is the 10-year yield.
    Brazil 10-yr bond yield

    Source: @MxSba

    Petrobras 5-year CDS spread hit 1,000 bps as the company's credit trades at distressed levels.
    Petrobras CDS

    Source: ‏@MktOutperform

    China's slowdown is the key cause of the situation in Brazil. It also continues to pressure a number of Asian economies.

    Disclosure: Originally published at Saxo Bank TradingFloor.com

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.