November, 2015: The U.S. Federal Reserve is to raise rates for the first time in nine years! Gold stumbles to a 5-year low and most commodities have hit their lowest price in six years! I enjoy the statistics but honestly, what can the market of 2015 have in common – what parallels can be drawn - with the market of 2006, 2009, or 2010? But then, what have you in common with the child of twelve whose glossy photograph your mom keeps on display atop her curio cabinet? Nothing, except you happen to be that same person!
Continue Reading Below
There once was an age where potential rate hikes were viewed as negative and central bankers agonized over the mere hint of rising inflation. Today investors are not simply accepting the December rate hike, but seemingly they are encouraged by it all. They also seem to be strangely rooting for higher gas prices!
The market together with the rest of the world is changing. There has been a not so subtle shift away from commodity sensitive sectors, a gently falling world GDP, and a stronger U.S. dollar. Like everything else commodity prices can change in certain directions which up to a point can be foreseen. Everything else is left to a guess.
West Texas Intermediate oil (WTI) began the month on a positive note – opening at $46.43 and quickly racing to its November high of $49.23 on 11/3 only to succumb to the gravitational pulls of OECD stock builds and resilient U.S. production. WTI fell down against the $40.00 support level on 11/23 only to bounce back to its November closing price of $43.20. Since late August - acknowledging a few brief exceptions, - WTI has remained in a very tight $45-$50 trading range; any breach of this range has been mostly sentiment based as the fundamentals have only deviated at the margin. Natural Gas prices continue to dwindle as news of record breaking storage being reached combined with a late start to the traditional warming season keeps a very bearish hand over the market. Natural gas markets end the month languishing with a -27.50% year-to-date loss. Barring another polar vortex, consensus remains very bearish as judged by the CFTC commitment of traders report.
Agriculture & Livestock
Continue Reading Below
Perfect weather and near perfect harvest caused corn prices to falter badly during November. Bulls entered the month with high hopes as rumors of disease and nitrogen deficiencies pervaded the eastern corn belt. The reports proved false as aggregate yield levels continue to exceed expectations. The net result was December corn losing -3.9% on the month while March corn was slammed by -4.6%. Soybeans languished in sympathy with corn -2.0% however showed some resilience given the positive tone emanating from the BRICs countries. Wheat dropped -8.5%, matching levels not seen since September, on a combination of a strong U.S. dollar and a stubbornly large inventory overhang. Even though live cattle declined -6.30% and Feeder’s fell -8.0% during the month, beef continues to hold an above average premium to pork, hampering demand and allowing meatpackers to be less aggressive in their bidding for live cattle. February Lean Hogs shed -7.7% as record breaking production and slaughter weights placed U.S.D.A. cutout values to fall to the lowest level in almost four years.
Gold continues its five year stumble – falling to fresh lows of $1052/oz. at months end – placing the metal 45% below its $1,889 peak price of September 6, 2011. Gold continues to be the poster child for a strong U.S. dollar, lack of inflation, and an imminent Fed rate hike. Additional factors for the break include a stagnation of retail demand, a highly back-to-back quarter(s) demand drought from India, and steady mine production. Silver sheds a whopping 9.6% on the month as it continues to bear the brunt of headwinds against precious metals and those affecting industrial metals. Intermediate-term supply concerns gave copper a welcomed boost early in November only to quickly surrender to news of Glencore keeping its Mount Isa smelting plant active along with the reality that supply concerns are an artificial replacement to the need of real demand support. Concerns about demand following the Volkswagen scandal weighed heavily on platinum as it dropped 15.5% on the month. Platinum’s performance, fears of a deeper China slowdown, along with a surge in output pummeled palladium by a stunning 19.0% during November.
A strange sense of calm pervaded the FX markets during November. Although the U.S. dollar clawed its way higher – up +3.0% -it did so without much fanfare or volatility. U.S dollar gains were clustered largely against the European currencies as the looming monetary policy schism has caused sentiment to focus on its realities. After dropping to its lowest level since its 1994 introduction, the Brazilian Real managed to rally consistently through October and into the end of November. Although its consecutive winning streak currently appears over, the Real did post a solid 4.0% gain on sharp monetary adjustments designed to stave off double-digit inflation. The three-year collapse continues as the Canadian dollar spent the month on a steep downward trajectory, weighed on heavily by the November slide in oil prices and fears that the U.S. benchmark rate could rise above Canada’s – removing any remaining yield benefit of holding Canadas currency. The Euro performed badly in November shedding -3.8% versus the U.S. dollar as European growth momentum has stalled while the U.S. keeps chugging along. Additionally, the revival of the U.S. – European monetary policy divergence that drove the Euro down -13% during the first quarter of 2015 has provoked another sharp downward adjustment.