The benchmark, CRB Commodity Index, ended the week 2,5% lower.
Another correction week in the commodity landscape. Natgas correcting sharply and only a few commodities with a small plus for the week.
As you can see the rally in the CRB index is kind of stalling at the moment. Longer-term trends are still up, as long as these trends don’t break we expect that the commodity rally will continue.
Here is my latest playbook:
Metals turning lower - as anticipated
As I wrote on several occasions, mainly in The Kuemmerle Report, I’m quite bearish toward industrial and precious metals. This view hasn’t changed yet and things could become very interesting again soon. Why?
Maybe the correlation between Realyields and metals will become significant again. (One reason could be that IMO inflation reaches its peak around July/August if oil isn’t printing new highs)
Combined with my latest cycle analysis (calculated on a 5-year dataset) for gold I would be very cautious on the long side.
Moreover, inventories especially for industrial metals like copper start to get built up again, which is, of course, a bearish indication, because supply seems to be big enough to build additional inventories again.
Easing in the cocoa market
The cocoa market is trading very cyclical and hasn’t seen these price spikes like for example in other soft commodities like cotton, orange juice or coffee.
It’s one of those non-trending markets where it makes sense to sell higher highs and buy lower lows.
Here we can also observe how the ICE warehouse stocks of cocoa are recovering rapidly. That led to more selling pressure for cocoa over the past weeks. I also expect that trend will continue.
Bad week for natural gas - but focus on the overall trend
After reaching my price target of 8USD last Monday, Natgas reversed and corrected over 20%. For now, I don’t use the weakness to buy in again.
Elsewhere In The Macro World
The only thing you need to know about “yield curve inversion”
There is a lot of talk about the yield curve inversion and an implied recession. Important to know are only two things here:
- Once the 10Y-2Y Treasury Yield Spread inverts (becomes less than zero) a recession, starting over the next 12-24 months is as good as certain. But this is a long time to wait for, so basically not a good recession timing tool.
- But as a better indicator, the recession usually starts around the point the spread surges back above the 0,5% threshold. Since the 80s this indicator is much more important and reliable.
This week look out for:
- GDP data on Thursday
- Core PCE Price Index on Friday
- Chinese PMI data on Friday as well
BTW If you would like to see more commodity and macro content like this - consider following me on Twitter @lukaskuemmerle
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