Nowhere to hide on Tuesday for commodities which repeated Friday’s sell off on Tuesday with a weak oil price leading the way lower.
Big losses wiped out the tentative gains from Monday’s half-hearted rebound and saw large blobs of red ink for November as well.
Oil, gold, silver, copper, iron ore, wheat and other so-called soft commodities all sold off to varying degrees on Tuesday to add to the slide that started last Friday – though iron ore only saw a small dip.
Oil was the main victim with US West Texas Intermediate (WTI) crude oil falling to its lowest level in more than three months on Tuesday on concerns over rising Covid Delta infections and worries current vaccines may not halt the spread of the new Omicron variant, thereby forcing the imposition of new quarantine measures and clampdowns on national and international movement.
Those fears saw WTI crude for January delivery close down $US3.77 or 5.4% to settle at $US66.18 a barrel, the lowest since August 23.
By settlement WTI had lost more than 13% in the past five trading days and over 20% in the last month.
January Brent crude, the global benchmark, fell more than 6% to settle at $US69.23 a barrel. It was trading just above that level in early Asian dealings on December 1 after losing more than 17% through November.
Ahead for oil is the looming OPEC+ decision on whether to trim the daily production cap by another 400,000 barrels.
The betting is the group won’t go through with the cut for December and leave a decision to January while they see how prices react from now on after the 20% slide in the past month (most of which came from trading from last Friday when the Omicron variant first reached the headlines.
Leaving the cap intact would help steady the weak price for oil and its various products (US petrol futures plunged more than 20% in November as well).
Comex gold fell half a per cent for the month as it lost all strength on Tuesday and dipped nearly $US10 to settle at $US1,773.60. That was loss of more than 0.3%. The renewed Covid fears haven’t helped gold at all.
Silver was hit harder, losing nearly 5% for the month to settle at $US22.765 and Comex copper shed 2.2% over November to end at $US4.278 a pound.
Chicago wheat lost 4% on Tuesday to end under $US8 at $US7.875 a bushel. That was a gain of 12 cents a bushel for the month or just over 1.2%. It had been as high as $US8.67 a bushel a week ago.
The fall was a combination of fears about the impact of the new Covid variant (traders ignored the fact that people still have to eat, as they did in 2020 and this year) and the news that Australia’s harvest will be a record (they ignored the rising reports of ran damage to wheat from the current big wet in NSW)
Iron ore had a negative November but the loss was a fraction of what was in prospect when prices fell to multi-month lows on November 18 of $US87.27 a tonne for 62% Fe fines.
Tuesday saw 62% Fe Fines from the Pilbara and delivered to northern China Iron ore lose less than a dollar to end at $US102.39 a tonne, according to MB Fastmarkets.
For November, the price was down more than 4% or $US4.89 a tonne. The late November recovery in prices clipped the loss from around 17% or just over $US15 from that 20-month low of $US87.27 a tonne hit on November 18.
US bond yields fell again to around 1.43% for the 10-year benchmark security – down more than 6 points on the day. The yield was down from the 1.56% level at the end of October.
The Aussie dollar was trading around 71.25 US cents, down on the day and month. In fact the fall from the October 29 close of 75.21 US cents was 4 cents, or well over 6%.
The nervousness was generated by two bits of news – firstly comments from the CEO of vaccine developer Moderna who told the Financial Times he thought existing vaccines may not be as effective against the omicron variant as they were against previous variants.
“A remark in the Financial Times made by the CEO of a major pharmaceutical company is generating renewed selling pressure: he believes that the current vaccines will be less effective against the new variant of the virus, meaning that new vaccines will need to be developed. This, and then making such modified vaccines available, will take months in his view. This is raising concerns about far-reaching mobility restrictions to combat the Omicron variant,” Commerzbank analyst Carsten Fritsch said in a note quoted by Marketwatch.
And Fed chair, Jay Powell put a faster end to the Fed’s tapering on the table for the last 2021 meeting of the bank’s key Open Markets Committee in a fortnight’s time when he told a US Senate hearing that he thinks reducing the pace of monthly bond buys can move quicker than the $US15 billion-a-month schedule announced earlier in November.
“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner,” Powell said. “I expect that we will discuss that at our upcoming meeting.”
Analysts said Powell’s comments suggest that the Fed’s focus has now changed to fighting inflation and its negative impacts rather than any more potential disruptions in economic activity from new variants of Covid.
