Oil is still the driver to commodity price movements because of events in Putin’s war in Ukraine but US interest rates and the value of the greenback are starting to have a growing impact of their own on markets.
Last week saw more rises in oil and key metals, a surge in US bond yields, especially Friday afternoon, a rise in the value of the US dollar, and surprisingly, a rise in the value of the Aussie dollar to new five-month highs.
(Usually when the greenback is stronger, the Aussie dollar is weaker – the Aussie rose 1.4% against the US currency last week but the greenback was stronger overall.
The Aussie dollar closed around 75.15 US cents, the highest since late October, 2021 and yet another sign that the country’s exposure to commodities is proving to be a benefit, not a negative in the eyes of offshore investors.
And so long as the supply problems of key commodities continues, the Aussie dollar will be in demand.
Russian gold supplies look like they will be restricted by after the Group of Seven countries decided to make it tough for Russia to use its 2,310 tonnes of gold reserves to pay for western imports.
That will not stop Russia doing deals with its friends like India, China and the Persian Gulf countries. Russia added more than three tonnes of gold to its reserves in January, according to the World Gold Council.
Comex gold was able to add more than 1.3% over the week despite a massive rise in US Treasury yields (14 points on Friday afternoon alone for the 10-year bond and more than 32 points over the five days), triggered by markets betting on a more aggressive Federal Reserve.
The rise occurred before the G7 statement appeared, which could crimp prices for a while today and tomorrow.
Friday’s gain came after Fed Chair Jerome Powell had signalled a possibility of 50-basis-point hikes at upcoming meetings in May and June, and been supported by several other Fed members.
On Friday, the 10-year rate jumped, hitting 2.503% on Friday — the highest level since May 2019. And April Comex gold futures were last at $US1,957.60 an ounce.
US analysts are watching the US yield curve for confirmation of the growing concern that the it is set to invert. An inverted yield curve (when the yields on longer dated bonds falls below the current yield so its shape is no longer rising but appears to be falling) tends to indicate a looming slowdown or recession. The relationship analysts pay closest attention to is the 2-year and 10-year Treasury yields.
Now the Fed has responded with hints of at least one future rate rise of 0.50%, bond markets and stockmarkets are getting all worried about the central bank doing what they have been demanding.
Bond and stockmarkets though are also having to watch the war in Ukraine, claimed changes in Russian military policy – which sounds very much like an admission of defeat and a desire to ease the impact of Western economic and financial sanctions which continue to be tightened.
That helped oil prices rises last week by anywhere up to 10%. Supplies remain tight with Russia switching off a pipeline that supplies crude from central Asia – Kazakhstan in fact- to the Black Sea.
That was a deliberate attempt by the Russians to restrict oil supplies from a rival producer (Russia can add crude along the way but doesn’t control the pipeline).
Brent crude prices rose more than 8% to settle at $US117.37 on Friday while UX WTI crude finished by nearly 10% at $US113.90 a barrel.
Last week saw US rig numbers rose by 7 to 670 in total and 7 in the number of oil rig numbers to 531.
The US, EU and several agencies are working to reduce Europe’s dependence on Russian oil and gas. There is no intention of imposing a total embargo on Russian oil, just restrict by finding alternate supplies of gas from as far afield as Australia.
Metal prices have also resumed their upward trajectory. Singapore iron roe futures ended at $US154.70 a tonne on Friday, up from $US153.20 a tonne the Friday before. Hard coking coal from Australia fell sharply to around $US330 a tonne in Singapore from more than $500 a tonne the week before while Newcastle thermal coal prices were around $US246 a tonne for the current April contract, up around $US10 to $US20 a tonne over the week.
LME copper prices ended just under $US10,280 a tonne (and $US469 a pound on Comex in New York, down half a per cent for the week), zinc and aluminium ended the week higher but nickel fell with the three-month nickel price closing at $US35,491 a tonne, down from $US37,235 a tonne on Thursday, and a long way from the absurd $US101 a tonne when the squeeze blew up the market in early March.
