If markets are to run higher, as many investors seem to want to see at the moment, it will have to be because the Fed has eased its pressure on the interest rate pedal and in turn on the value of the ultra-strong US dollar.
The strong greenback is suppressing rises in commodity prices across the board because most are priced in US dollars.
And because the strength of the currency has been enormous against other major currencies – the euro, pound, yen and the Chinese yuan, the suppression is larger than it seems, and inflationary to boot.
For all the news and reports that will be used to try and justify a market run up in coming weeks, the value of the US dollar will be the one factor to watch.
Interest rate rises though continue for the time being – in Canada and the EU this week and the Fed and Australia the following week.
Some will be triple banger rises (0.75%) from central banks which will be negative for commodities. The chances the Bank of Japan lifting rates is remote at the moment but if it happened would be an enormous reversal of a decade of easy money policies.
But with the value of the yen sliding through 150 to the dollar – last month’s record $US20 billion on intervention was at a much higher rate and had no impact- the pressure is on Japan to do something unconventional.
Commodities will see an immediate benefit from any fall in the value of the greenback – there were hints last week in the oil market of traders anticipating a change in the value of the dollar as the recent weakness eased and prices stabilised.
Brent settled around $US93.50 a barrel and US West Texas Intermediate crude traded around $US85.05 a barrel by Friday’s close. WTI rose 0.47% for the week, while Brent was up 2%.
Traders ignored the Biden administration’s announcement on Wednesday confirming the release of 15 million barrels of oil from the strategic reserves to partially offset the OPEC+ supply cut.
This release is part of Washington’s plan to release a total of about 180 million barrels of reserves.
Natural gas prices continue to fall in Europe. The Rotterdam TTF is trading below EUR 130/megawatt hour (MWh), after peaking at nearly EUR 350/MWh in late August. The European Commission is reportedly considering imposing limits on daily variations rather than a cap on gas prices.
EU leaders also plan to encourage joint purchases of gas between member states to limit competition in supplies.
Meanwhile, the US oil and gas rig count rose two to 771 last week to its highest since March 2020, according to the weekly report from services group, Baker Hughes.
Baker Hughes said that puts the total rig count up 229, or 42%, over this time last year.
US oil rigs in use rose two to 612, also the highest since March 2020, while gas rigs were unchanged at 157.29dk2902l
…………
Base metals traded mixed last week. Lead and tin lost ground at $US1,990 and $US18,900 a tonne respectively, while zinc and nickel stabilised around $US2,940 and $US21,800 a tonne respectively.
Copper traded around $US7,560 a tonne on the London Metal Exchange late Friday.
In New York, Comex copper rose 2% over the week to finish at $US3.52 a pound.
In precious metals, Comex gold added half a per cent to $US1,651 an ounce and Comex silver was up more than 5% at $US19.04 an ounce – still $US1 under the close of two weeks ago.
Iron ore prices fell to a new low for the past year or more of $US89.90 on Thursday and closed Friday at $90.70 a tonne (for 62% Fe fines delivered to northern China).
That was down more than 3.5% over the previous week when it closed at $US93.77 a tonne. Prices are down around 10% so far this month.
Newcastle thermal coal priced through the ICE index fell to $US391.45 a tonne at the close on Friday, down 1.4% over the week thanks to a fall of 1.7% on Friday.
Australian hard coking coal on the SGX ended at just over $US291 a tonne in Friday, up from around $US284 the week before despite the weakness in China.
Among rural commodities, wheat traded down around 850 US cents a bushel (down 1% for the week) with corn around 680 US cents.
