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AC-Tradeable Commodity Snapshot 010419

EXECUTIVE SUMMARY

Fed dovish pivot, Brexit delay and trade deal hopes are now in the back mirror. Risk-on conditions are still valid and overall Greed index at 18 months high. But commodities clearly lost momentum. Oil, Gasoline (disruption risk in OPEC) and Platinum (switch from Palladium) were among the leaders, but agri commodities kept on falling to the new lows and were followed by Natural Gas (spring heat) and most Metals (strong dollar, retraced yields)

Macroeconomic drivers were better China stimulus finds its way into the higher credit growth and better PMI, US macro stabilizes after winter drop on Govt Shutdown but with Europe in mild recession. Other EM either in stagnation or in outright crisis mode (Turkey, S.Africa, Argentina, Venezuela). We still doubt that Fed to be as dovish as market believe and there will be a tough road ahead with strong USD and reduced dollar liquidity as QT program is keep on going to at least September. Huge US fiscal deficit doesn’t help dollar availability as well

Chinese economy rebounds at least temporarily but it will not return to 6.5-7% growth as Govt wouldn’t allow for new bubbles to inflate (equities and housing are flashing red flags with too much credit created). Structural rebalancing is underway and commodity intensity of its economy is going to be further reduced

Investors’ interest in commodities is not growing further after the 1Q19 rebound. Commodity futures open interest is at 5 years low and volume traded -20% from the last year peak. But there is no excess in any sector except in palladium (there was short squeeze in physical market) and gasoline (hedge funds positioning)

Weather conditions are moving toward moderate El Nino that is negative for prices of most grains and natural gas, but a little bit positive for cocoa and coffee. Political risks are for upside in copper and precious metals (Africa) and negative for agriculture commodities (Turkey, Argentina – demand reduction, Brazil – supply growth with BRL depreciation)
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