The Story of This Week: A New High in the Dollar Index/WASDE
While PPI and CPI data were calm at the end of this week, the inflation gauges on the wholesale and retail sides of the market provide additional support along with Q2 GDP growth for the Fed to hike rates twice more this year. The prospects for rising short-term rates along with the continued impact of quantitative tightening each month pressuring rates higher along the yield curve finally pushed the dollar above technical resistance and over the 96 level on the dollar index on Friday.
As the weekly chart highlights, the September dollar index futures contracts rose to its highest level in 2018 and since June 2017 at 96.31 on August 10. The dollar index is in overbought territory on the weekly chart along with relative strength, and the greenback broke above the top end of the range it had been consolidating in since mid-May. Higher rates and a strong dollar typically have a bearish impact on the prices of commodities.
Meanwhile, gold and other precious metals, copper and other base metals, oil and most other raw material markets did not fall to lower lows on the final day of last week after the upside break in the dollar index. The rise in the dollar index was partially because of the trend of PPI and CPI data, but the Turkish financial crisis that caused a flight to quality on Friday was the primary issue that caused the dollar to break to the upside. It is likely that European banks have exposure to Turkey which caused the euro currency to decline and the dollar to appreciate.
On Friday, Aug. 10, the USDA released its August World Agricultural Supply and Demand Estimates report (WASDE) in an environment where trade rather than the weather and growing conditions dictated the path of least resistance for crop prices over past months. The USDA report was bearish for most agricultural products that trade on the U.S. futures exchanges, and prices dropped significantly on Friday led by soybeans which declined by over 40 cents per bushel during the session.
Highlights in Commodities:
- Gold posts a 0.34% loss on the week but does not make a lower low for 2018
- Silver moves 1.08% lower since the last report
- Platinum posts a 0.87% loss for the week and was trading at a $385 per ounce discount to gold on their respective October futures contracts
- Palladium falls 0.75% on the week but remains just over the $900 per ounce on the September futures contract
- Copper moved 0.76% lower on the week on the back of trade and as BHP and the Union enter mediation at Escondida in Chile
- Iron ore down 0.52% on the week as steel remains a central focus in the tariffs issue
- The BDI corrects 3.53% lower since the last report
- Rotterdam coal rises 2.46% on the week
- Lumber continues to fall posting a 3.62% loss on the week and trades to a new low of $404 per 1,000 board feet the lowest level of 2018 on the September futures contract on prospects for higher rates
- September NYMEX crude oil moved 1.26% lower during the week on trade issues
- October Brent crude oil moves 0.56% lower as Iran remains in the background
- The premium for Brent over WTI in October closes the week at the $5.90 unchanged on the week
- Gasoline moves 1.27% lower, but heating oil gains 0.60% since last week on September futures as seasonal factors impact oil product prices
- The gasoline crack spread falls 2.45% while the heating oil crack increases by 6.08% on September futures
- Natural gas moves 3.19% higher on the September futures contract as the energy commodity moves to the top end of its trading range. The EIA reports an injection of 46 bcf into storage on Thursday for the week ending on August 3
- Ethanol moves 6.18% higher on the week on the back of losses in corn following the August WASDE report and in sympathy with lower gasoline
- November soybeans move 4.49% lower for the week after falling more than 40 cents per bushel in post-WASDE trading on Friday
- December corn falls 3.25% on the week with losses coming after Friday’s USDA report
- CBOT wheat moves 1.71% lower on the week after the August WASDE. September KCBT wheat trading at a 13 cents premium over CBOT wheat, up by 2 cents from last week
- Sugar moves 2.86% lower on the week
- Coffee moves 0.70% lower since last week’s report
- Cocoa up just 0.09% on the week as September futures roll to December
- Cotton moves 3.28% lower on the week after a post-WASDE sell-off in the fluffy fiber
- FCOJ futures fall 4.20% on the week as the price fails at the $1.70 per pound level and falls towards $1.60
- Live cattle down 2.46% since last week as the 2018 grilling season has only weeks left
- August feeder cattle down 2.29% since the previous report
- Hog futures move 0.79% higher on the week as the October futures contract rejects levels below 50 cents per pound
- The September dollar index futures contract moves 1.32% higher and closes over the 96 level for the first time since June 2017 on PPI/CPI data and a flight to quality over Turkey
- September long-Bond futures trading at around 144-12 up 1-13 for the week on a flight to quality over Turkey
- The Dow Jones Industrial Average closes at 25,313 on Friday, August 10, down 150 points on the week. The VIX moves 1.50 higher and was trading at 13.16 on Friday on Turkish fears
- Bitcoin continues to slide, closing at $6,391.81 Friday down $997.22 or 13.50% since last week
- Ethereum moved lower to $357.12 down 13.93% since the last report
Price Changes for the Week:
GSG closes the week at $17.02 per share, down 18 cents since last week’s report.
GSG is the iShares S&P GSCI Commodity-Indexed Trust which represents a diversified basket of commodities futures contracts, has net assets of $1.43 billion and trades an average daily volume of 427,503 shares.
Disclaimer: Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
The Hecht Commodity Report is a must-read…
The Hecht Commodity Report is one of the most comprehensive commodities reports available today from the #2 ranked author in both commodities and precious metals. My weekly report covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. More than 120 subscribers are deriving real value from the Hecht Commodity Report.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.