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How the Weather charts commodity price rises
Commodities are showing strong gains for a third week with postive performances seen across all sectors. Not least agriculture where coffee and sugar were strong performers, followed by precious metals. Growth dependant commodities such as energy and industrial metals also showed a positive return but were held back by another expected decline in manufacturing confidence in February, not least China where the HSBC manufacturing PMI dropped to a seven month low.
Adverse weather across the Americas continues to be one of the main contributors to the current gains with an extended and very cold winter in the US supporting natural gas, heating oil and as a consequence also indirectly WTI Crude. The cold weather across the US midwest has raised concerns about reduced production of wheat due to winter kill.
In Brazil the hottest January ever and the lowest rainfall for 20 years has led to the lowering of production forecast for coffee, sugar and soybeans.
Coffee reached a 16 month high after rallying more than 50 percent this year. The ICE exchange responded by raising the margin on holding futures exposure by 65% to dampen some of the leverage speculation by hedge funds after daily trading volumes.
WTI Crude broke above 100 USD/barrel and the spread to Brent contracted to 7 dollars. Continued strong refinery demand due to increased production of heating oil combined with a continued removal of the glut at Cushing Oklahoma lent support. Brent crude is caught between a potential slowing demand following weaker Chinese data and continued supply disruptions in Libya, Nigeria and South Sudan. The escalating violence and tension in Venezuela is currently just below the radar and could become a supporting factor if it continues.
Week ahead: momentum remains positive but further upside remains limited, prefer sell into rallies looking for a retracement back towards 101 or below that 99.
Gold and silver spent the week consolidating their recent strong gains. Momentum and technical traders have now filled their boots and are waiting for the driver to carry the metals higher. A failure to find such a driver leaves both metals exposed to some long liquidation and profit taking should the 200 day moving averages stay at 1302 and 21.02 respectively.
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