To The Moon

The benchmark, CRB Commodity Index, ended the week -0,9% lower.

The energy was mixed with gasoline up and natgas down. The volatility in the energy sector remains huge, but the momentum remains strong.

Metals were all lower while Realyields surged further and economic momentum seems to slow down further and further.

Grains were mixed with wheat as the biggest winner after the latest WASDE report was getting published on Thursday (I cover the topic in The Kuemmerle Report)

Softs were mixed as well, many commodities here are consolidating, while orange juice broke out to the downside. Last but not least it was a horrible week for crypto.

BTW If you would like to see more commodity and macro content like this - consider following me on Twitter @lukaskuemmerle

Here are my latest observations:

Liquidity drives markets

Market liquidity is so important, especially when it comes to high beta assets, like cryptocurrencies or highly valued tech companies.

But it seems like money market liquidity also plays an important role when it comes to commodities. Especially since the importance of QE intensified over the last 10 years or so.

We have a new trend in the oil sector

While crude oil inventories (ex. injections SPR) are able to recover slowly, inventories of refined products are looking worse from week to week.

Therefore the oil market is projecting a false sense of stability when it comes to energy inflation. The real economy is suffering a much stronger price shock than it appears because fuel prices are rising much faster than crude.

Lithium Supply Shortage

The metal we all need to electrify our infrastructure is quite scarce. Nevertheless, the USGS estimated recently that 2021 saw stronger global production and larger proven reserves. As this trend is encouraging the demand side seems to be much bigger.

Price action is the direct result of supply and demand. And if we look at the Lithium price we have to acknowledge that there is a real supply shortage. YTD Lithium is up over 130%.

Elsewhere In The Macro World

The peak in Treasury Yields?

Looking at the rate of change correlation between US 10Y treasuries and the Citi Economic Surprise Index, one could make the case that yields have already peaked.

If I look at duration, I have to say that the shorter end of the yield curve is currently looking the most promising. 2Y Treasuries for example are trading in a tight range for five weeks. Watch out for a breakout to the upside to confirm a general peak in yields.

This week look out for:

• Retail Sales data on Tuesday
• FED chair Powell speaks on Tuesday as well
• Philly FED Manufacturing data on Thursday