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Commodity market Report - January 2020

EXECUTIVE SUMMARY

Trade war is officially over as US and China signed the Phase.1 deal in the middle of January. Trump is desperately willing to support financial markets in election year especially as he faces an impeachment process. Overall risk conditions switched to the high Greed mode not seen since the late 2017 with commodities have been finally playing catch up – only Nat Gas, Aluminum and Corn are in Fear mode. Overall Energy complex was very volatile as geopolitical spikes gave way for deeper corrections. Precious metals shined bright and have got overvalued. Agri commodities mostly rose with coffee made an impressive +/- 15% move in just couple of months. Copper and Aluminum are slightly undervalued but saw a rotation from overvalued Nickel

Macroeconomic drivers turn to neutral as the hopes for Trade Deal and monetary stimulus improved business confidence. On the other hand more stable macroeconomic data and significantly reduced trade war risks make dovish expectations from the global CBs less obvious with the Fed is starting to think how to exit its REPO stimulus gambit and the ECB is not going to cut rates anymore. EM economies stabilized with downside risk.   

Chinese economy is moderately improving, but risks are still here: unrest in HK, capital flight, overheated housing market and stress in overleveraged corporate and banking sector with record number of defaults last year

Investors’ interest in commodities was really high over the last months. But it was concentrated in retail investors’ money flow as trading activity in commodity futures declined and net positioning improved moderately with Precious metals and Gasoline are the most overbought and Aluminum and Nat Gas are the most oversold

Weather conditions are in moderate chance of El Nino that is negative for prices of most grains and natural gas, but a little bit positive for cocoa and coffee. Political risks turned positive for most commodities as Trade War and recession risks abating, Iranian risks are less acute and electricity shortage in S.Africa is positive for Precious

TOP TRADING IDEAS:

  • Add Short in June Palladium at 2200 $/oz (target 1500 $/oz). Add Long in July Platinum at 900 $/oz

  • Play the range in Brent: long at 50-55 and short at 65-70 $/bbl.

  • Buy Gold at 1450 $/oz with mid-term target of 1650 $/oz; hedge with Short in Silver at 18.5-19.0 $/oz

  • Play the range in Cocoa: long at 2250-2300 and short above 2800 $/mt.

  • Go long in Coffee at 110-112 cents/lb for May futures with ST and LT targets above 125 and 140 cents/lb

  • Copper was a good contrarian buy, now it’s time to take profit and switch to short at 295 cents/lb

  • Long August Nat Gas futures at 2.0 $/MMBtu for better fundamentals and target 3.0-3.1 $/MMBtu

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commodity;

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Oil Market Report - March 2020

Crude oil prices ended February 2020 sharply lower with both ICE Brent and NYMEXWTI showing monthly declines of more than 12% to reach their lowest monthlyvalues in almost 2.5 years as the rapid spread of Covid-19 in China and several othercountries raised investors’ concerns about the impacts on the global economy and oildemand, and triggered a sharp sell-off in markets amid uncertainties on the extent ofdemand destruction and worries that this health crisis might evolve into a pandemic.

oil, investment, equity

Arbat Capital: Banking Sector Report - February 2020

US banks tumbled again in February after very weak performance in January amid spreading COVID-19 around the world. The broad market was underperformed substantially for the second consecutive month after 4 months in a row of leading dynamics. Thus, BKX index decreased by 12.5% MoM in February vs -8.4% MoM of SPX index. Absolute performance on MoM basis was -2 std from the mean and it is in the bottom 4% of absolute MoM performance of BKX index.

investment, banks;

Commodity market Report - February 2020

Trade war is officially over but Chinese risks resurfaced from the other side - extreme quarantine measures after coronavirus outbreak in Jan-Feb resulted in significant breakdown in the industrial production chains and construction activity. However monetary and fiscal stimuli quickly reversed negative sentiment and overall risk conditions returned to the high Greed mode with only commodities market kept in risk-off mode. Energy complex was very volatile as its initial sharp drop was lately compensated by OPEC verbal interventions and renewed risk in Libya and Venezuela. Industrial metals fell sharply, but Precious shined brightly with unbelievable bubble in Palladium. Agri commodities were mostly range bound with Cocoa being top performer

Macroeconomic drivers turn to negative as positive developments after the Trade Deal signature and record financial markets levels gave the way to fears of world economic slowdown after the virus outbreak. On the other hand there were not many voices for recession as stimulative monetary policy should provide the cushion. However we think that markets overstated willingness of the Fed to keep on printing and the main risk once again turned to the hawkish surprise when it exits REPO stimulus gambit and the ECB to end QE. 

commodity;