The benchmark, CRB Commodity Index, ended the week 1,0% higher.
The energy sector was strong again, despite a larger correction in natgas futures on Friday. Moreover, energy was the only part of the commodity sector that was broadly up over the week. Grains, metals and softs traded mostly all lower over the week.
10Y Realyields ended the week positive again for the first time since January 2020. Crypto performed pretty badly as financial conditions continued to become tighter at a rapid pace.
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Here is my latest playbook:
Food prices declined a tad during April
The FAO Food Price Index showed a deceleration in food price inflation during April. But this was kind of the expectation because many key commodities went into a consolidation phase. While the index declined 0,75% on a month-to-month basis, it’s still up 30% YTD.
If we look closer at the sub-components of the index, we can see that meat, sugar and dairy products surged further in price, while cereals were as good as unchanged. Oil prices made a difference this month, which fell by over 5%.
Emerging Markets underperform commodities clearly
At the moment it’s hard to imagine commodities rolling broadly over to the downside again. Moreover, the USD vs. commodity price correlation is broken which means that the USD and commodities surge at the same time, given the commodity supply shock in so many sectors.
Therefore I imagine that EM stocks will catch a reprieve once the dollar shows signs of weakness again. Nevertheless, a weaker USD would still imply that the commodity rally is far from over.
But as always there will be losers and winners throughout the grain, metals, energy and soft sector. With Kuemmerle Research I provide the needed tools to identify those markets that are most likely to outperform via combining fundamental and technical analysis as well as a statistically driven approach to trading the commodity markets.
Elsewhere In The Macro World
No signs of oil demand destruction in the energy sector
At last week’s earning presentation, Royal Dutch Shell CEO Ben van Beurden got asked if there were any signs of slowing demand in the energy sector for fossil fuels. This was his answer:
“no, we see a continued increase in product demand around the world" "we definitely do not see a reduction in demand" "we also see by the way a continued decrease in investment in supply"
Meanwhile, I can definitely confirm the second part of the statement. I looked at the CAPEX incentives of oil companies and found out that the energy industry is evolving quite fast. Oil companies are making their CAPEX spending more sustainable. TotalEnergies, for example, intends to allocate 25% of its investment budget to renewable energies and low-CO2 energy production over the next 4 years, Royal Dutch Shell intends to allocate half of the investment budget to the same area by 2025, and the British energy group BP has set itself the same goal by 2030.
Sounds bullish for fossil fuels to me, right?
This week look out for:
- OPEC meeting on Wednesday
- CPI data on Wednesday
- PPI data on Thursday
- WASDE report on Thursday
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