Ghana will solve debt crisis without IMF help, finance minister says

By Cooper Inveen

ACCRA (Reuters) -Ghana is committed to managing its debt without assistance from the International Monetary Fund (IMF), Finance Minister Ken Ofori-Atta said, expressing his confidence that government measures were moving the country in the right direction.

Ghana’s total public debt, which stood at about 77% of its gross domestic product at the end of 2021, according to government data, has pushed one of West Africa’s largest economies to the brink of crisis.

The government in March announced a raft of spending cuts to tackle inflation, reduce the public deficit, restore a depreciating local currency and reassure spooked investors.

But it has consistently refused to ask the IMF for help.

“We have committed to not going back to the fund because… the fund knows we are [moving] in the right direction,” Ofori-Atta said at a media conference in the capital Accra.

“It’s about validating the program we have in place and finding other ways of handling our debt.”

The gold, oil and cocoa producer saw consumer inflation rise to an 18-year record of almost 24% in April despite efforts to contain price hikes and spur recovery.

Ofori-Atta said the priority would be to solve the country’s domestic debt, which has interest rates that are three to four times higher than foreign debt.

“We need to decide ourselves what structure would be useful to us,” he added.

The central bank in March raised its main lending rate by a record 250 basis points and is expected to review this at a next Monetary Policy Committee meeting on May 23.

Ofori-Atta said another interest rate hike would be a “knee jerk reaction” to “imported inflation”, noting that prices had continued to increase since the March increase.

“We need to figure out an approach that in a way gives us fiscal space,” he said.

Ghana’s credit ratings have been downgraded over concerns about the government’s ability to pass legislation to raise revenues.

There has been fierce opposition to a tax on electronic payments approved in April and presented as a panacea to financial woes, with critics saying it will unfairly impact lower-income people and small business owners.

(Reporting by Cooper Inveen; Writing by Sofia ChristensenEditing by James Macharia Chege, Alexandra Hudson)

Ghana’s consumer inflation spikes to ‘shocking’ 23.6% in April

By Cooper Inveen

ACCRA (Reuters) – Ghana’s consumer price inflation accelerated to 23.6% year-on-year in April from 19.4% in March, the statistics service said on Wednesday, a recent record one economist said was “shocking”.

The West African nation’s latest inflation reading was the highest in 18 years and more than double government’s targeted band of 6% to 10%.

Prices for 295 of the 307 items analysed by the statistics service rose in April. Prices for imported items accelerated faster than locally produced items for the first time in 29 months, except in the case of locally produced food.

Transport costs, which include fuel prices, saw the largest increases, up to 33.5% from 17.4% in March. Diesel costs alone were up 90.9%.

“We were all expecting the diesel increases, and these are imported items,” government statistician Samuel Kobina Annim told a news conference.

“But we need to look at it from the food and non-food perspective if we want policy to get a hold of the challenges we are having,” he added.

Food prices were up 26.6% from the previous month and nearly double the category’s 12-month average of 13.5%. Cereal prices were among the greatest contributors, continuing a trend that began with Russia’s invasion of Ukraine in February.

Razia Khan, Standard Chartered Bank’s chief economist for Africa and the Middle East, said the spike was “shocking” and may pressure the central bank to further tighten interest rates.

“Failure to act soon could have far reaching implications, putting at risk any hopes for quick macroeconomic stabilisation,” she said.

Ghana’s central bank raised its main lending rate by a record 250 basis points in March, fearing that runaway inflation, compounded by a depreciating local currency and mounting national debt, could ignite a full-blown economic crisis.

The central bank’s monetary policy committee will meet from May 18 to March 23 to discuss further adjustments.

(Reporting by Cooper Inveen; Editing by Estelle Shirbon and Alex Richardson)

EU lawmakers call for pact on cocoa prices with Ivory Coast and Ghana

By Ange Aboa

ABIDJAN (Reuters) – A group of European Union parliamentarians has asked the European Commission to open negotiations with Ivory Coast and Ghana to address low cocoa prices, it said in a letter.

The two West African countries, which together produce more than 60% of the world’s cocoa, called on the EU earlier this year to join them in creating an economic pact which would ensure cocoa farmers earn a living wage.

Most cocoa farmers in these countries live in extreme poverty, earning well under $1 a day, said a letter signed by members of the Responsible Business Conduct Working Group of the European Parliament.

Low prices paid for cocoa are a key driver of deforestation and child labour in the sector, which are of concern to the EU as it seeks to prevent imports of commodities linked to environmental and human rights abuses.

“We urge the Commission to rapidly engage in formal negotiations with the governments of Cote d’Ivoire and Ghana with the aim of reaching an Economic Pact for Sustainable Cocoa,” said the letter seen by Reuters, dated April 27.

The pact would entail an agreement between all parties on what to do to resolve the low price of cocoa and manage cocoa supply to prevent market shocks, it said.

An EU Commission spokesperson did not immediately respond to a request for comment.

The EU is the leading destination for Ivorian cocoa, accounting for about 67% of the country’s exports.

But a newly proposed EU law could force cocoa traders to drop some suppliers because they use unethical practices.

“In view of the environmental and social provisions implemented by the EU and many other countries in term of regulations, an ‘Economic Pact’ is now necessary… in order to satisfy the first condition of sustainability,” said Alex Assanvo, head of the Ivory Coast-Ghana Cocoa Initiative, set up by both governments.

Both countries in 2019 imposed a “living income” premium on all cocoa purchases in order to raise farmers’ wages, but they said last year that traders were not paying it.

(Reporting by Ange Aboa; Writing by Nellie Peyton; Editing by Sandra Maler)

COT: China Growth Fears and Strong Dollar Drive Exodus From Metals

A week that saw a continued deterioration in the global growth outlook driven by extended China lockdowns, a stronger dollar and increasingly aggressive rate hike signals from members of the US Federal Reserve. The week highlighted how traders positioned themselves ahead of last Wednesday’s FOMC meeting. During the week US ten-year bond yields jumped 25 basis points while the dollar reached fresh cycle highs against most currencies. Commodities were mixed with gains in energy and softs being offset by losses across grains, livestock and metals.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Spot index traded close to unchanged in the week to May 3 with a six percent gain in energy led by natural gas and diesel as well higher prices for cocoa and cotton in the softs sector, offsetting weakness in precious (-2.3%) and industrial metals (-5.2%), as well as grains (-2.8%).

Speculators and money managers responding to these price changes and the continued loss of momentum by cutting bullish bets across 24 major commodity futures by 7% to 1.85 million lots, a four month low.

Despite racing to a record high in recent weeks, the sector has increasingly become nervours about the global growth and demand look. In the short term due to Chinese lockdowns and longer term due to high inflation and tightening monetary conditions hurting demand. The drop in the total net long to a four months low also driven by elevated volatility forcing leveraged funds, targeting a certain level of volatiltiy to cut their exposure.

From a recent pre-war and pre-China lockdown peak on February 22 at 2.23 million lots, the energy sector exposure has been cut by 23%, metals are down 67% while the agriculture sector is up 2% led by softs.

Energy

Crude oil and refined product futures witnessed a small build in net longs held by funds while a 14% surge in natural gas helped trigger profit taking resulting in a 14% reduction in the net long held in four Henry Hub deliverable futures and swap contracts. Small buying of crude oil did not hide the fact momentum has slowed and traders have become more risk adverse given the number of multiple forces currently impacting the price of oil in both directions.

Latest: Crude oil (OILUKJUL22 & OILUSJUN22) trades steady near a one-month high with the general risk aversity from a stronger dollar, the economic damage from China lockdowns, inflation and monetary tightening being offset by continued supply concerns from Russia and other OPEC+ producers struggling to meet their production targets. G-7 leaders have joined the EU in making a commitment to phase out their dependency on Russian energy, including oil.

While the risk in our opinion remains skewed to the upside, the latest developments are likely to keep crude oil rangebound with focus instead on refined products where multi-year highs are already hurting demand. Monthly oil market reports from EIA Tuesday, followed by OPEC and IEA on Thursday.

Metals

Gold was sold for a third consecutive week with the net-long falling to a three-month low with rising yields and the stronger dollar driving a loss of momentum. The 17% reduction to 82.9k lots was driven by a combination of long liquidation and fresh short selling lifting the gross short to a seven-month high.

Copper has recently suffered from extended China lockdowns hurting the outlook for demand from the worlds top consumer, as well as short selling from macro-based funds using copper as a short play on China. Four weeks of net selling culminated last week with the position flipping to a net short of 8.8k lots for the first time in two years.

Latest: Gold remains at the mercy of a continued rise in US Treasury yields and the stronger dollar with inflation data this week from the U.S. and elsewhere potentially driving additional volatility across market. China and India, two major sources of demand for gold, both seeing their currencies weakening against the dollar, thereby potentially negatively impacting the short-term demand outlook.

Overall, however, compared with stocks and bonds, gold’s relative strength continues. As of last Friday, an investor based in dollars holding gold was +16% ahead relative to the S&P 500 and more than 26% versus TLT:arcx an ETF that tracks the performance of long-dated US government bonds.

In Europe, an investor based in euros has seen an XAUEUR position outperform the pan-European Stoxx50 index by more than 25% and 20% versus an ETF tracking European government bonds. Support at $1850 and $1830.

Agriculture

The grains sector saw selling across all of the six futures contracts led by a 50k lots reduction across the three soybean contracts. The overall 66k reduction was generally driven by a combination of longs being reduced and fresh short positions being added.

Overall the total net long across the sector and the Bloomberg Grains Spot index remains close to a multiyear high, a reflection of current adverse weather uncertainty across the world raising concerns about production levels, together with the risk of the Ukraine war preventing production and exports of key food commodities from wheat to sunflower oil.

Forex

Broad dollar strength and with that broad demand against its major peers accelerated ahead of last week’s FOMC meeting. As the Dollar index climbed to levels last seen in 2003, all of the nine IMM futures tracked in this saw net selling with the aggregate dollar long jumping by $6.3 billion or 41% to $21.8 billion. Selling was most noticeable in EUR were 28.6k lots of selling flipped the net back to a 6.4k lots net short.

This was followed by CAD (-11.9k) and JPY where 5.3k lots of selling took the net short to within 90% of the recent peak at -111.8k lots. Sterling meanwhile was sold for a ninth week, driving an increase in the net short to a 2-1/2-year high -73.8k lots.

What Is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

COT: Metals Led Exodus of Spec Longs on FOMC and Growth Fears

A week that saw a continued deterioration in the global growth outlook driven by extended China lockdowns and increasingly aggressive rate hike signals from members of the US FOMC. The S&P 500 lost 6.4% while VIX jumped 12% to 33.5%. The broad Bloomberg dollar index rose 1.3% while ten-year bond yields slumped by 22 basis points to 2.72%.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Spot index dropped 2.3% after hitting a post-Easter record high with all sectors registering losses led by industrial metals (-5.2%) and precious metals (-4%). In response to these developments, hedge funds cut bets on rising commodity prices by the most since last November. Seventeen out of 24 contracts saw net selling with overall net long being reduced by 8% to 2 million lots, representing a $14.3 billion drop in the nominal value to $149.3 billion.

Biggest reductions hitting the metal sector led by gold and copper, followed by the softs sector. The energy sector saw no appetite for adding exposure, despite strong gains among the fuel contracts.

Latest updates on crude oil, gold and copper can be found in our daily Market Quick Take here

Energy

Crude oil was mixed with surging fuel prices supporting a relative outperformance of the WTI contract, but overall a 12k lots increase in WTI was more than offset by a 14k lots reduction in Brent, on global demand concerns, thereby leaving the net down by 2k to 411k lots, and near a 17-month low.

Fuel products surged higher amid tightness caused by Russian sanctions with gasoil in Europe and diesel in New York (ULSD) both surging higher by 30% and 27% respectively. These changes, however, did not attract any appetite for adding risk with both contracts seeing only small changes.

Metals

The combination of growth concerns, especially in China, and very aggressive rate hike statements from US FOMC members, combined with a stronger dollar, helped drive a dismal week for both industrial and precious metals.

Speculators responded to the 2.8% drop in gold by cutting bullish bets by 20% to 99.4k lots with the bulk of the change being driven by long liquidation, not fresh short selling. A similar picture in silver which in response to a 7.4% loss saw its net long being cut by 36% to 26.5k lots.

Platinum saw 13.3k lots of selling flip the net positions back to a net short for the first time since September. HG Copper fared even worse with speculators wiping the slate clean with the net returning close to neutral for the first time since May 2020 when the price was trading close to half the current level.

Agriculture

The grains sector saw the net long being reduced from a ten-year high by 36k lots to 783k lots. Selling was led by corn and soybeans while wheat only witnessed a small reduction in an already relative small bullish bet. The exception was soybean oil which jumped 5.4% in response to a growing global supply crisis impacting edible oils such as sunflower and palm oil.

The softs sector saw the biggest week of net selling since November with the stronger dollar and a general deterioration in risk appetite triggering reductions across all four commodities led by sugar and cocoa.

Forex

Another week of broad dollar strength with the Dollar Index rising 1.3% saw speculators turn net buyers of dollars for the first time in four weeks. The net long versus ten IMM currency futures and the Dollar Index rose 8% to $15.7 billion.

Currencies seeing the biggest amount of net selling was led by the euro (-9.1k lots) and sterling (-10.7k lots) with the latter seeing the net short reach a 2-1/2-year high at 69.6k lots. Yen short covering after hitting a 20-year low supported a temporary bounce, and with that a 11.7k lots reduction in the net short to 95.5k lots, still by far the most shorted currency against the dollar.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

WCU: Fuel Price Surge Lifts Inflation and Risks Killing Demand

Commodity Markets Monthly Fundamental Analysis

The commodity sector raked in another monthly gain in April with the Bloomberg Spot Index tracking 23 major commodity futures, rising for a fifth consecutive month, and in the process hitting a fresh record high. However, the gains were concentrated in the agriculture and energy sectors with precious and industrial metals suffering setbacks in response to extended Covid-19 lockdowns in China hurting growth and demand, and worries that a rapid succession of US rate hikes will hurt an already weakening economic outlook.

In addition to this, the dollar reached multi-year highs against several currencies, most notably a 20-year high against the Japanese yen and a five-year high against the euro.

China’s current situation has by a major investor in Hong Kong been described as the worst in 30 years with Beijing’s increasingly fraught zero-Covid policies slowing growth while raising discontent among the population. As a result, global supply chains are once again being challenged with congestions at Chinese ports building, while demand for key commodities from crude oil to industrial metals have seen a clear drop.

While being short on details, China’s Politburo responded on Friday to this growing unease by promising to boost economic stimulus to drive growth. Earlier this week, President Xi highlighted infrastructure as a big focus and if implemented it would become a key source of extra demand for industrial metals, hence our view that following the recent weakness a floor is not far away.

In my latest online seminar and, in a podcast on MACROVoices this past week, I highlighted the reasons why we see the commodity rally has further ground to cover, and why they may rise even if demand should slow down due to lower growth.

Crude oil

Crude oil continues to trade rangebound within a narrowing range, in Brent currently between $98 and $110 per barrel. It did, however, not prevent the cost of fuel products from surging higher. Diesel, the workhorse of the global economy, rallied strongly led by tightening supply in the New York area driving prices to historic highs.

The war in Ukraine, and subsequent sanctions against Russia, have upended global supply chains while at the same causing a significant amount of stress in the physical market, especially in Europe where Russia for years has been the most important supplier of fuel products.

To fill the void and to benefit from soaring prices, U.S. Gulf Coast refiners have been sending more cargoes to Europe and Latin America at the expense of the U.S. East Coast where stockpiles consequently have dropped to the lowest since 1996. With New York harbor serving as the delivery point for futures trading in the NY Harbor Ultra-Light Sulphur Diesel contract, the tightness there is having an outsized impact on visible prices.

These developments highlight the importance of focusing on the cost of fuel products, and not crude oil, when trying to determine the price levels where demand starts to be negatively impacted by higher prices. As a result, refineries are currently earning a lot of money with margins hitting record levels both in the U.S. and Europe. The charts below show the crack spreads, or the margin achieved by producing diesel from WTI in the U.S. and Brent in Europe.

With the war ongoing and the risk of additional sanctions or actions by Russia, the downside risk to crude oil remains, in our view, limited. In our recently published Quarterly Outlook, we highlighted the reasons why oil may trade within a $90 to $120 range this quarter and why structural issues, most importantly the continued level of underinvestment, will continue to support prices over the coming years.

With regards to the lack of investment currently creating concerns about future level of supply, we will be keeping a close eye on earnings next week from European oil majors such as Shell, Enel, BP and Equinor. Also, given the mentioned surge in refinery margins, the result from Valero.

Gold

Gold was heading for its first monthly loss in three months with an expected turbocharged tightening pace by the US Federal Reserve as well as the mentioned dollar strength being two major catalysts. Silver led the weakness falling to a 2-½-month low around $23 per ounce due to China-related weakness across the industrial metal sector.

As a result, the XAUXAG ratio broke above resistance at 80 ounces of silver to one ounce of gold. Renewed focus on Chinese stimulus initiatives, as mentioned above, would help create a floor under silver, thereby reducing its recent negative pull on gold.

Recently, I have been asked the question why gold is doing so poorly considering we are seeing inflation at the highest level in decades. To this my answer continues to be that gold is doing very well and in line with what a diversified investor would hope for.

We tend to focus primarily on gold traded in dollars, and XAUUSD as can be seen from the table below has ‘only’ returned around 5.5% so far this year. But if we add the performance of the S&P 500 Index and long maturity US bonds the picture looks a lot better. Gold in dollars has outperformed these two major investments sectors by +15% and +23% so far this year. Turning to gold traded in other currencies, the performance looks a great deal better due to the impact of the strong dollar.

Investors in Europe seeking shelter amid rising inflation and a sharp deterioration in the economic outlook have achieved 24% and +21% better returns in gold compared with the Euro Stoxx 50 benchmark and euro government bonds.

We maintain a positive outlook for gold driven by the need to diversify from volatile stocks and bonds, inflation becoming increasingly imbedded and ongoing geopolitical concerns. Having found support at $1875 this week, a weekly close above $1920 may see renewed upside driven by fresh momentum and technical buying.

Copper

Copper broke the uptrend from the 2020 low resulting in a drop to near a three-month low around $4.40 per pound, before sentiment received a boost from China’s pledge to maintain the 5.5% growth target, a level the Chinese economy is currently operating well below.

While the short-term outlook has worsened and inventories at exchange-monitored warehouses have risen during the past four weeks, the outlook in our opinion remains price supportive. The demand for action to isolate Russia through a reduction in dependency of its oil and gas is likely to accelerate the electrification of the world, something that requires an abundant amount of copper.

In addition, Chile, a supplier of 25% of the world’s copper, has seen production slow in recent months, and with an “anti-mining” sentiment emerging in the newly elected government, the prospect of maintaining or even increasing production seems challenged. In addition, Chile’s 13 years of drought and water shortages are having a major impact on the water-intensive process of producing copper.

Moreover, government legislation has been put forward to prioritize human consumption of water and if voted through it may delay investment decision but also force mining companies to invest in desalination facilities, thereby raising the cost of production further.

Agriculture

Soybean oil futures in Chicago reached a record high as Indonesia’s sweeping ban on palm oil exports and rationing of sunflower oil at supermarkets in Europe further stretches global supplies of edible oils. Export restrictions for palm oil used in everything from cooking to cosmetics and fuel will stay in place until domestic prices ease and given that Indonesia consumes only one-third of its production, we should expect exports to resume once inventories are rebuilt and prices stabilize.

The edible oils sector, which according to the UN’s food index has risen by 56% during the past year, is the hardest hit by weather woes and the war in Ukraine, the world’s biggest exporter of sunflower oil, and it is leading to food protectionism by producers which inadvertently may boost prices further.

Speculators have recently increased their exposure to U.S. crop futures to a record with slow planting progress and deteriorating crop conditions highlighting a challenged and price supportive situation. In their latest weekly update, released on Mondays, the US Department of Agriculture said corn planting had advanced by 3% to being 7% complete, the slowest pace in almost ten years and trailing last year’s pace of 17%.

Winter wheat rated good/excellent dropped 3% to 27% and was near the worst on record. The planting delays and conditions have been caused by the weather being too cold, too wet, or a combination of both. Big grain harvests in North America are needed this year after Russia’s invasion of Ukraine has reduced shipments out of the Black Sea, from where 25% of the global wheat export originates, while raising doubts about this year’s crop production in Ukraine.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Mondelez flags profit hit from Ukraine crisis even as quarterly results impress

By Deborah Mary Sophia

(Reuters) -Mondelez International Inc flagged a hit to its annual profit due to the Russia-Ukraine war, even as higher prices and resilient demand helped the Oreo maker top Wall Street estimates for quarterly results.

The war has exacerbated the pain for packaged food makers by sparking a rally in wheat, oil, and energy prices when they are still struggling with global supply-chain snarls, higher freight costs and labor shortages.

Mondelez expects a 3-cent hit to its adjusted per share earnings in 2022 and a $200 million impact on its revenue.

“We expect elevated levels of input cost inflation to continue through the remainder of the year, and we will continue to take necessary actions to offset this dynamic,” Chief Executive Officer Dirk Van de Put said.

The Trident gum maker said it now expects inflation in the low double-digit range for the year, up from its prior view of about 8%.

Analysts, however, said the lowered profit outlook was not much of a surprise.

“The efforts Mondelez is making to focus on new products and better-selling items, and lowering controllable costs, should eventually pay off,” said Edward Jones analyst John Boylan, adding the chocolatier’s price hikes so far appear to be accepted by consumers.

The price increases and strong growth in the Ritz crackers maker’s emerging markets helped lift its organic revenue 8.6% in the first three months of the year, and fueled a raise in its full-year core sales forecast.

Mondelez now expects organic net revenue to increase over 4% in 2022. It had previously expected growth in line with its long-term target of more than 3%.

Net revenue rose 7.3% to $7.76 billion in the quarter, topping Refinitiv estimates of $7.39 billion, while adjusted profit of 84 cents per share came in higher than the 74 cents expected.

(Reporting by Deborah Sophia in Bengaluru; Editing by Krishna Chandra Eluri)

COT: Spec Buying Pauses on China and Growth Concerns

A holiday shortened Easter week that saw stocks trade higher despite fresh warnings being signaled through rising bond yields and a stronger dollar. In the days that followed, tough talking by Fed officials helped send yields and the dollar even higher as the market started pricing in 250 bps of Fed hikes this year, potentially raising the risk of the FOMC delivering 75 bps hikes.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodity markets

The Bloomberg Commodity Spot index reached a fresh record high during the reporting week with strength in energy, led by diesel and natural gas, and grains offsetting losses in precious metals and softs. Hedge funds potentially troubled by the prospect for rising yields and China lockdowns killing growth and with that demand held their net length close to unchanged with most of the buying concentrated in crops, resulting in a near record long across major six grains and oilseed contracts.

General comment from today’s Market Quick Take

Commodities across all sectors, led by metals are under pressure this Monday as the focus shifts from Russia sanctions-led supply angst to demand destruction due to already high prices, expectations for an aggressive US rate hike cycle killing growth, and not least continued lockdowns in China which have spread from Shanghai to Beijing.

The Bloomberg Commodity Spot index jumped an unprecedented 24.5% during the first quarter and after hitting a fresh record last week, the shift in focus may trigger an oversized correction. Positions held by investors and speculators are mostly geared towards higher prices, something we may not see until China gets on the other side of the outbreak and the impact of central bank rate hikes are being analyzed.

Agriculture

The risk of a global food crisis caused by weather worries and the risk of a sharp reduction in this year’s Ukraine production, helped underpin the grain and soybean sector. Overall the sector net long, which includes six crop futures, reached a ten year high at 819k lots with buying concentrated in soybean oil and corn. The bullish belief in higher prices can be seen in the long/short ratio with readings of 43 longs to 1 short in soybeans and 33 to 1 in corn highlighting a sector with literally no short positions left. A development, despite strong fundamental support, has left the sector exposed to a speculative sell out should the mentioned general commodity sector weakness continue.

Across-the-board reductions were seen in softs, most notably coffee where the net long at 29.6k lots stood at half the 60k lots record from mid-March. Four weeks of sugar buying paused with the net down 1% to 236k.

Energy

The combined net length in Brent (+27.3k lots) and WTI (-14.5k) crude oil rose by 12.8k lots to 414k lots, thereby highlighting a continued lack of interest in positioning for higher prices. The prospect for very tight market conditions due to sanctions on Russia and OPEC producers struggling to meet their production targets, have in recent weeks been offset by the release of oil from strategic reserves, prolonged lockdown in China and central banks stepping up efforts to lower inflation by killing demand through higher rates.

Despite falling domestic stocks of gasoline and especially diesel as well as robust exports, the WTI net long dropped to a two-year low at 240k lots, primarily driven by long liquidation.

Metals

Gold’s failed attempt in challenging $2000 and subsequent correction triggered another round of long liquidation from technical and momentum driven leveraged funds. The net long has cut by 19.7k lots to 125k, thereby surrendering most of the gains seen during the previous week. Small selling of silver as well as copper concluded a general negative week for the metals week.

Forex

Continued dollar strength in the holiday shortened Easter week to April 19 lifted the Bloomberg Dollar Index by 1% but failed to boost speculators overall appetite for dollars, with flows more about the crosses. Overall, the combined dollar long versus ten IMM currency futures and the Dollar index held steady near a five-week low at $14.5 billion. Selling of euro and Sterling being offset by demand for CHF, JPY and CAD while the net flow in AUD and was tiny.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Ivory Coast’s Ouattara names central banker as his vice president

By Loucoumane Coulibaly and Nellie Peyton

YAMOUSSOUKRO (Reuters) -Ivory Coast President Alassane Ouattara has named Tiemoko Meyliet Kone, governor of the West African central bank, as his vice president in a possible clue to his succession plans.

The 80-year-old leader made the announcement during an address to parliament, days after Prime Minister Patrick Achi and his government resigned. Ouattara described Kone as an “outstanding technocrat” and “brilliant economist”.

Achi has been reappointed as Ivory Coast’s prime minister, Senate President Jeannot Ahoussou-Kouadio subsequently told the joint session of both chambers of parliament on Tuesday.

Kone’s appointment as vice president, a position that has been vacant since 2020, might suggest that Ouattara has him in mind as a potential successor.

The president’s previously handpicked successor, former Prime Minister Amadou Gon Coulibaly, died suddenly in July 2020. Rather than choosing someone else, Ouattara ran for election again and won a third term in November that year.

Ouattara told parliament that Kone had been a dedicated leader of the West African regional central bank BCEAO, which issues and manages the CFA franc currency used by eight countries.

“He’s a brilliant economist, a hard-working and competent man, who was involved in the reform of the CFA franc, which was a delicate operation,” he said, noting that Kone had also held high-ranking government jobs in Ivory Coast in the past.

Ivory Coast is the world’s top cocoa producer and one of West Africa’s largest economies. Despite years of relative peace since a brief civil war in 2011, ethnic and regional rivalries linger.

Ouattara came to power in 2011 following an election the previous year that sparked a conflict when the defeated incumbent, Laurent Gbagbo, refused to concede.

Opposition groups said Ouattara violated the constitution, which limits presidents to two terms, when he ran again in 2020. Ouattara maintained that the approval of a new constitution in 2016 allowed him to restart his mandate.

The next presidential election will be in 2025.

(Additional reporting by Bate Felix and Ngouda Dione in Dakar; Writing by Nellie Peyton; Editing by Estelle Shirbon and Pravin Char)

Achi reappointed PM of Ivory Coast after resigning last week

YAMOUSSOUKRO (Reuters) – Patrick Achi has been reappointed as prime minister of Ivory Coast after he resigned from the post last week, Senate President Jeannot Ahoussou-Kouadio told a joint session of parliament on Tuesday.

(Reporting by Loucoumane Coulibaly in Yamoussoukro, Nellie Peyton and Bate Felix in Dakar; Editing by Estelle Shirbon)

Ivory Coast President Ouattara says will name slimmed-down govt next week

ABIDJAN (Reuters) – Ivory Coast Prime Minister Patrick Achi tabled his resignation and that of his government on Wednesday as President Alassane Ouattara plans to slim down the size of the cabinet, Ouattara said on Wednesday.

Ouattara said he would reduce the government to around 30 ministers from the current 41, with new appointments to be made next week to govern the world’s top cocoa producer.

The president is expected to address a joint session of the West African country’s parliament on April 19, a government spokesman told Reuters.

A slimmer cabinet will be more efficient and in tune with the global economic climate, Ouattara said during the cabinet meeting at which he accepted the government’s resignation.

“It is imperative to reduce state spending and re-focus on social and security resilience,” he added.

He did not specify which ministerial positions would be cut.

Achi was not immediately available for comment.

At the cabinet meeting, the Prime Minister said his decision to resign followed the intentions by the president to re-shuffle the government.

“We have given the best of ourselves to execute your vision for 2030,” he told Ouattara.

Achi, 66, was appointed prime minister in March last year.

(Reporting by Loucoumame Coulibaly; Writing by Sofia Christensen; Editing by Bate Felix and James Macharia Chege)

Commodity Rally Slows on China Lockdowns and Fed Angst

Commodity Markets Fundamental Analysis

The commodity sector rally has unsurprisingly slowed down during the past couple of weeks as the market continues to digest a whole host of developments impacting the sector. During the first quarter, war and sanctions turbocharged an already strong performing sector, resulting in the Bloomberg Commodity Spot Index registering a 24% gain, its best quarter in living memory, thereby almost eclipsing the 2021 gain of 26.5%, the best annual performance since 2000.

The war in Ukraine and increasingly tough sanctions against Russia have uprooted multiple supply channels from crude oil and gas to key industrial metals as well as food commodities such as wheat, corn, and sunflower oil. All developments that have created logistical challenges and elevated input costs for many industries to the extent that some heavy energy consuming industries have started to scale back production, thereby supporting the painful and potentially long route towards stabilising prices through lower demand.

As the war drags on and hostilities temporarily slow down, the market attentions have turned to the lower demand theme which is currently being driven by some short and other more long-term developments. Crude oil is the most noticeable in this context, having shed most of its invasion-driven gains with the focus turning to China’s worsening covid outbreaks, the release of strategic reserves and a hawkish turn by the US Federal Reserve raising growth and demand concerns.

The possibility of the U.S. tumbling into a recession next year was an outcome suggested by some analysts this week after the Federal Reserve raised the prospect of faster pace rate hikes to combat high and widening inflation. The market has almost priced in ten 25 basis points rate hikes during the next ten months, with the Fed’s Bullard looking for an even faster pace. In addition, the Fed will start to aggressively trim its balance sheet from May and the reduction of liquidity will have the same impact of three or four additional 25 basis point hikes.

Inflation remains a key concern for the market and while it was talked about in 2021, it is now increasingly being felt by consumers and businesses around the world. The impact of EU gas prices trading six times above their long-term average on heating bills and energy intensive production from cucumbers to steel and fertilizer is being felt and the economic fallout can increasingly be seen.

Global food prices meanwhile remain a key concern as highlighted by the FAO Food Price Index. In March it jumped 12.6% to a record after the war wreaked havoc on supply chains in the crucial Black Sea breadbasket region, a key supplier to the global market of wheat, corn and vegetable oils.

While the index was 33% higher than the same time last year, the latest increase reflected new all-time highs for vegetable oils (23.2% MoM, 56.1% YoY), cereals (17.1%, 37.3%) and meat sub-indices, while those of sugar (6.7%, 22.6%) and dairy products also rose significantly.

The prospect of continued supply disruptions from Ukraine this year together with US and South American weather concerns as well as the mentioned rise in the cost of fuel and fertilizers will likely led to another year of tightening supply.

In Ukraine, according to UkrAgroConsult, military actions in some key production regions, closed supply lines and lack of fuel could result in a 38% y/y reduction in the wheat harvest to 19.8 million tons and 55% reduction in the corn harvest to 19 million tons. In the US, the conditions of the winter wheat crop have slumped to the worst level in a decade amid dry soil conditions while surging cost of fertiliser may negatively impact crop production in South America.

Gold

Gold traded unchanged on the week as it continued to find buyers despite a stronger dollar and Treasury yields reaching a fresh cycle high after the Federal Reserve signaled a more aggressive trajectory for rate hikes and quantitative tightening. We maintain a bullish outlook for gold, a view that has been strengthened recently by the yellow metal’s ability to find fresh buying interest despite an increasingly hawkish Fed and the breakdown in the normal strong inverse relation with US real yields.

Overall, however, the yellow metal remains stuck in a wide $1890 to $1950 range with selling attempts in the futures market being offset by asset managers and long-term focused investors seeking protection through gold ETFs against the risk of slowing growth, elevated inflation as well as continued volatility in bonds and equity markets. A fresh upside attempt remains difficult to achieve without renewed support for silver and platinum, both currently struggling on a relative basis with the XAUXAG ratio above 78 and platinum’s discount to gold at a 17-month high at 967 dollars per ounce.

Copper

Copper, the so-called king of green metals, continues to enjoy some tailwind from other industrial metals. Most recently zinc, where the threat of shortages, especially in Europe where LME stocks are critically low, has seen the price move higher. Copper did trade near a one-month high earlier in the week after Chile, the world’s largest producer of the metal, reported a 7% year-on-year decline to 399,817 tons in February, this following a drop of 7.5% year-on-year in January.

While a tight supply outlook and the green transformation will continue to underpin prices over the coming months, the market currently must deal with negative developments in China where draconian lockdown measures to combat covid outbreaks are likely to weaken the growth outlook by more than the government had originally forecast.

Once the covid cloud has lifted, the Chinese government is likely to step in with additional measures to stimulate growth and that should help off-set the impact of lower growth elsewhere caused by soaring prices and accelerated tightening from the US Federal Reserve.

After reaching a record high above $5 per pound last month, HG copper traded back to $4.5 per pound before moving higher again. The outlook for copper remains supportive with tight supply offsetting the risk of an economic slowdown. We maintain this bullish view to take prices to a fresh record high later this year. In the short term, a break below the 200-day moving average, currently at $4.41 per pound, will not ruin our bullish view, only prolong the period of range bound trading.

US and EU gas markets

US and EU gas markets went in opposite directions thereby supporting a long-awaited convergence between the two. US Henry Hub reached a 2008 high near $6.50/mmbtu, driven by robust domestic demand due to unseasonal cold weather and strong export demand for LNG. Natural gas inventories shrank by 33 billion cubic feet last week, with inventories now some 17% below the five-year average, the widest gap since 2019.

In Europe meanwhile, a reluctance to ban Russian gas, together with milder weather and record LNG imports have seen the price of Dutch TTF gas traded lower but at €108/MWh or $34.5/mmbtu it remains very elevated and at levels that will continue to negatively impact demand. Europe and especially Germany’s U-turn on Russian gas dependency will require high prices during the coming months in order to attract record oversea supplies of LNG.

Crude oil

Crude oil has drifted lower following weeks of extreme turbulence and near record prices and this week it managed to retrace most of the invasion-driven gains after breaking below the uptrend from the December low. There are several reasons why the market focus has, at least for now, turned away from the loss of Russian barrels.

The four major factor, some of which are temporary, being 1) EU avoiding adding Russia crude to its growing list of sanctioned products, 2) China’s worsening covid outbreak and extended lockdowns driving a temporary contraction in fuel demand, especially for diesel and jet fuel, 3) slowing US gasoline demand in response to high prices and the prospect of an economic slowdown as the FOMC steps up its battle against inflation, thereby hurting demand, and finally 4) the release of millions of barrels of crude oil from strategic reserves held by the US and other members of the International Energy Agency.

With the war ongoing and the risk of additional sanctions or actions by Russia the downside risk to crude oil remains, in our view, limited. In our recently published Quarterly Outlook we highlighted the reasons why oil may trade within a $90 to $120 range this quarter and why structural issues, most importantly the continued level of underinvestment, will continue to support prices over the coming years.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

War and Sanctions Turbocharging Already Tight Commodity Markets

The prospect for a long-lasting cycle of rising commodity prices that we first wrote about at the start of 2021 continues to unfold. During the past quarter, the war in Ukraine and sanctions against Russia helped turbocharge a sector that was already witnessing a tightening supply outlook. Before government handouts and central banks dumping rates to zero helped drive a post-pandemic overstimulation of the global economy, years of ample supply with steady prices had reduced investments towards new production, thereby leaving producers ill-prepared for the demand surge that followed.

With supply already tightening, the commodity sector was extremely ill-prepared when President Putin ordered the attack on Ukraine, thereby triggering a change in the market from worrying about tight supply to seeing supply disappear. With Russia, and to a certain extent Ukraine, being major suppliers of raw materials to the global economy, we have witnessed some historic moves with Russia’s growing isolation and self-sanctioning by the international community cutting a major supply line of energy, metals and crops.

The Bloomberg Commodity Spot Index, already showing gains similar to 2021—the best year for commodity returns since 2000—will likely spend Q2 consolidating with a focus on four major potentially market-moving developments: 1) Russia’s willingness to stop the war, thereby beginning the long road to normalising commodity supply chains; 2) China’s slowing economic growth versus its ability to stimulate the world’s biggest commodity-consuming economy; 3) the strength and speed of US rate hikes and their impact on inflation and growth; and finally 4) whether commodity prices, especially across the energy sector and to a certain extent industrial metals, have reached levels that will see demand destruction set in.

Commodities Trading in Backwardation

The tightening supply outlook that emerged across global commodity markets during the past year had already driven prices sharply higher before they were turbocharged by the sudden disruption of flows from Russia and Ukraine.

As a result, the Bloomberg Commodity Spot Index—which tracks a basket of 24 major commodities spread evenly across energy, metals and agriculture—reached a record high on March 8, thereby recording a stunning and in the short term unsustainable year-to-date increase of 38 percent. A rally of such speed and magnitude lifting the input cost across the global economy carries the risk of slowing the growth and demand for many key commodities.

While most commodities—with a few exceptions—have since eased back towards their prevailing trends, the price-supporting tightness across markets has not yet shown any signs of easing. Measuring the spread between the first and second futures month we find that a record 21 out of 28 major commodity futures are currently trading in backwardation, a gauge which helps measure the market’s concern about shortfalls and the higher price buyers are willing to pay for immediate delivery compared to delivery at a later date.

Another measure shows the one-year roll yield on a weighted average of the components in the Bloomberg Commodity Index has reached a record 12 percent, with the strength currently being carried by the energy sector, cotton and grains.

Energy

Brent crude rallied to within a few percent of the 2008 record high after Russia invaded Ukraine, while fuel products, led by diesel, surged to fresh record highs. This was especially true in Europe where, as major buyers of Russian fuel products, self-sanctioning by several commodity traders raised concerns about the availability of supply. However, within a few days most of the gains had been given back with traders instead turning their attention to renewed Covid lockdowns in China and the US Federal Reserve beginning its long-awaited rate hike cycle.

With normal commodity supply channels from Russia broken, an end to the war in Ukraine is unlikely to trigger a swift return to normality. The breakdown in relations and trust between Putin’s Russia and the West is likely to take a long time to mend.

Multiple uncertainties will trigger another wide trading range during the second quarter—potentially between $90 and $120 per barrel. Ultimately the market should stabilise with an upside price risk from reduced spare capacity among key producers and continued supply disruptions related to Russia being partly offset by slowing demand as the global economy becomes increasingly challenged by inflation and rising interest rates. Add to this a temporary Covid-related drop in demand from China and the outlook for a revisit to the March high looks unlikely.

Key events that could trigger additional uncertainty remain the prospect for an Iran nuclear deal, Venezuela being allowed to increase production and, not least, an increase US shale oil production, should producers manage to overcome current challenges related to lack of labour, fracking teams, rigs and sand.

Industrial metals

Aluminium, one of the most energy-intensive metals to produce, raced to a record high during March along with nickel, while copper reluctantly also briefly touched the highest level ever. Current supply disruptions from Russia will continue to support the sector throughout 2022, not least considering the ongoing push towards a decarbonised future.

At the same time increased defence budgets in response to the Russian threat will keep demand robust despite the current risk of an economic slowdown. In addition, and supportive for the sector, is the outlook for slowing capacity growth in China as the government steps up its efforts to combat pollution, and ex-China producers for the same reasons being very reluctant to invest in new capacity.

While the energy transformation towards a less carbon-intensive future is expected to generate strong and rising demand for many key metals, the outlook for China is currently the major unknown, especially for copper where a sizable portion of Chinese demand relates to the property sector.

But considering a weak pipeline of new mining supply we believe the current macro headwinds from China’s property slowdown will moderate throughout 2022. In addition, we also need to consider the prospect that the PBOC and the government, as opposed to the US Federal Reserve, is likely to stimulate the economy, especially with a focus on green transformation initiatives that will require industrial metals.

While the Ukraine war and Russian sanctions turbocharged these metals to fresh record highs well ahead of expectations, the outlook for most metals remains supportive with tight supply and inelastic supply response likely to drive prices even higher throughout the rest of the year.

Precious metals

During the first weeks of 2022 the strength of gold surprised the mfarket, not least because the January rally unfolded while US real yields moved sharply higher. The outbreak of hostilities in Ukraine then added a short-lived geopolitical risk premium which saw gold charge higher, only to miss the 2020 record high by a few dollars.

Heading into the second quarter we see gold eventually adjust to the US rate hike cycle and move higher. Our bullish outlook is based on the belief that inflation will remain elevated, with components such as rising input costs from commodities, wages and rentals not being lowered by rising interest rates. We believe gold is also increasingly being viewed as a hedge against the markets’ currently optimistic view that central banks will be successful in bringing down inflation before slowing growth forces a rethink of the pace of rate hikes and the resulting terminal rate.

Having reached our $2000 per ounce target ahead of time we see the market consolidate its first quarter gains before eventually hitting a fresh record high during the second half as growth slows and inflation remains elevated.

Agriculture

The UN FAO Global Food Price Index hit a record high in February before the Ukraine war made matters worse by raising the prospect of even tighter markets across key food commodities, from wheat and corn to edible oils. Adverse weather in 2021 has already reduced global stock levels of key food commodities from soybeans to palm oil and corn. In addition, surging fuel prices will not only drive increased demand for biofuels, but also raise the cost of production through higher diesel and fertiliser cost.

We see an elevated risk of high food price inflation with the focus being weather events and, not least, the duration of the Ukraine war; an extended period of fighting may limit production from Ukraine, a major global supplier of wheat. In its latest monthly report, the US Department of Agriculture lowered its estimates for exports from Russia and Ukraine by a combined 7 million tons to 52 million; this estimated reduction remains clouded in a high degree of uncertainty and could rise sharply in the event of a long, drawn-out war, thereby keeping prices elevated.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Will Commodities Continue to Outperform in Q2 2022?

Commodity Markets Fundamental Analysis and Price Action

As we head into a fresh month and fresh quarter of 2022 – Rapidly surging global inflation, Rate Hikes and Geopolitical Risk are now emerging as the three major themes dominating and driving the financial markets.

Oil prices soared above $130 a barrel to hit their highest level in a decade. While Gold extended its parabolic rally from just under $1,800 an ounce to a high of $2,070 an ounce – just $5 short of an all-time high reached in August 2020.

The bullish momentum also split over into other commodities with Aluminium, Copper, Lithium, Platinum, Palladium, Uranium, Zinc, Coffee, Wheat and Lumber prices blasting through all-time highs.

Elsewhere, U.S Natural Gas prices have almost doubled this quarter and are on course for their strongest rally since 2009. Meanwhile, European Natural Gas prices have skyrocketed a whopping 90% to post their biggest monthly rise ever.

But the best performing commodity was Nickel.

Nickel prices snatched the headlines this month with a blistering gain of over 250% in a single day to register the biggest one-day move ever seen in the history of the commodities markets.

In total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains within the first quarter of 2022 – And this is just the beginning!

According to Goldman Sachs “we’re still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.

Commodity Prices Forecast Video for the Week 04.04.22

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Precious Metal Prices Post Best Quarter Since 2020 – What’s Next?

Commodity Prices Fundamental Analysis

In total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains within the first quarter of 2022… And this is just the beginning!

According to Goldman Sachs “we’re still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.

Looking ahead, traders will be closely monitoring Friday’s Key U.S Employment Report for clues on the precious metal markets next big move. This is not only the most highly anticipated economic report of every month, but it’s also a key measure of economic performance and inflation tracked by the Fed – which always has the potential to move the markets significantly.

There will be a huge focus on Friday’s data, especially as the recent uptick in inflation could force the U.S Federal Reserve to raise interest rates more aggressively if needed.

With inflation running at a 40-year high, finding the right balance between stabilizing prices and supporting the economic recovery is one of the biggest challenges facing the Fed right now.

Friday’s U.S jobs report will either make the Fed’s decision on future rate hikes much easier or much more difficult, which ultimately opens the door to new and exciting opportunities ahead.

Commodity Prices Forecast Video for 01.04.22

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

COT: Energy Sector Led Cautious Recovery in Risk Appetite

That week that saw a post-FOMC surge in risk appetite with the MSCI World and S&P 500 both jumping by more than 6% while VIX, the fear index, slumped. Bond yields raced higher on the prospect of rising inflation, forcing a more aggressive Fed reaction while the dollar held steady with a sharply weaker yen being offset by gains across most other currencies. The commodity sector traded mixed with strong gains across the energy sector and softs being partly offset by metal weakness and emerging softness across key crops.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Spot index traded higher during the reporting week, thereby recouping some the losses from the previous week when surging volatility and increased focus on margin calls forced a blanket reduction of positions across the whole sector.

Energy

The energy sector saw most of the activity with gains from 15% in crude oil to 30% in gas oil (diesel) lifting the net long across the sector for the first time in three weeks. Hedge funds lifted their WTI and Brent crude oil net long by 13k lots, after 123k lots were dumped during the previous two week amid surging volatility and margin calls. The 28% jump in ULSD (diesel) triggered a 23% reduction driven by fresh short selling.

From today’s Market Quick Take:

Crude oil (OILUKMAY22 & OILUSMAY22) trades lower in early trading with Friday’s rebel attacks on Saudi Arabia are being offset by concerns about the short-term demand outlook in China, after the world’s largest importer of crude, said it would lock down half of Shanghai for mass testing as virus flare-ups continue to spread. Russian and Ukraine peace talks resumes this week but with Putin’s government regarded as toxic to many key buyers, self-sanctioning is likely to continue despite a potential solution.

On Thursday, OPEC+ meets virtually to set targets for May but given their inability or unwillingness to discuss the elephant in the room, the drop in Russian production, hopes for additional barrels from GCC producers remain slim. Key resistance in Brent at $123/b while a break below $112/b would signal further loss of momentum.

Metals

Speculators continued to adjust positions following the recent 175 dollar top to bottom correction in gold, and after the FOMC carried out the first of many rate hikes in order to curb runaway inflation. The result being a 9% reduction in both gold and silver length. HG Copper meanwhile saw its net long jump 25% but at just 36.5k lots, it remains around 45% below the one-year peak.

From today’s Market Quick Take:

Gold (XAUUSD) trades lower as the global bond rout continues to gather momentum with the US ten-year Treasury yield surging past 2.5% in Asia while crude oil trades lower as China’s virus flare-ups worsens and Ukraine appears to be ready to discuss a deal (see below). Having failed to punch through resistance at $1962 last week, the market is once again trading on the defense with focus on ETF flows, the key source of underlying demand during the past month. A break below $1922 raising the risk of a return to key support in the $1900 area.

Copper (COPPERUSMAY22) trades lower for a third day with traders worried about the short-term impact of demand as China, the world’s top consumer, continues to battle virus flare-ups. In addition, Jiangxi Copper Co., China’s top producer of the metal, warned on Friday that prices of the metal may fall this year along with other commodities as countries roll back stimulus and high prices curb demand, while logistics bottlenecks ease.

Grains

The grains sector also saw mixed action with length being added to soybeans and corn while wheat saw a small net reduction. Overall, however, the net long across the six major futures markets reached a ten-year high and the third highest on record.

Soft Commodities

A strong across sector gain of 5.5% only attracted net buying to cotton and sugar with coffee’s bounce from a four-month low lacking conviction as longs were reduced as the price moved higher.

Forex

Despite trading lower following the long-awaited first US rate hike on March 16, speculators instead opted to increase their overall dollar long against ten IMM currency futures and the Dollar index by 45% to $15.4 billion.

Except for fresh EUR buying, flows were generally dollar friendly with selling being most noticeable in CAD (-22.6k lots or $1.8 billion equivalent), and JPY (-16k lots or $1.7 billion equivalent) which dropped to a six-year low.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Commodity Prices Set For The Greatest Year Since 1915 – What’s Next?

Commodity Prices Analysis for the First Quarter of 2022

As we head into the final week of March and into a fresh quarter of 2022 – rapidly surging global inflation, rate hikes and geopolitical risk are now emerging as the three major themes driving the financial markets.

So far this quarter, Commodity prices across the board have been on an absolute tear racking up double to triple digit gains – positioning themselves firmly on track for their greatest year on record in over a century.

Oil prices soared above $130 a barrel to hit their highest level in a decade. While Gold extended its parabolic rally from just under $1,800 an ounce to a high of $2,070 an ounce – just $5 short of an all-time high reached in August 2020.

The bullish momentum also split over into other commodities with Aluminium, Copper, Lithium Platinum, Palladium, Uranium, Zinc, Coffee, Wheat and Lumber prices blasting through all-time highs.

Elsewhere, U.S Natural Gas prices have almost doubled this quarter and are on course for their strongest rally since 2009. Meanwhile, European Natural Gas prices have skyrocketed a whopping 90% to post their biggest monthly rise ever.

But the best performing commodity this quarter is Nickel.

Nickel prices snatched the headlines this month with a blistering gain of over 250% in a single day to register the biggest one-day move ever seen in the history of the commodities markets.

Already within the first quarter of 2022 – a total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains and this is just the beginning!

According to Goldman Sachs “we’re still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.

Commodities Price Forecast Video

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Higher Inflation Is Here To Stay – What Does That Mean for Gold?

March has been a monumental month for monetary policy as governments and central bankers across the world ramp up the fight against rapidly surging inflation while acknowledging that inflationary pressures could persist for years, driven in part by the crisis in Ukraine.

Just a few months ago, 2022 looked set be the year of global recovery, with the U.S, China and Europe returning to pre-pandemic levels of growth. However, the world is now in a completely different place from what it was just a month ago.

The current fundamental backdrop, combined with the largest war on European soil for almost 80 years, economic impact of sanctions on Russia and the return of Coronavirus to China – once again threatens global supply chains, enviably fueling inflation expectations to rise further.

This ultimately presents huge bullish tailwinds for the entire Commodities sector and boosts demand as traders pivot into assets that are known to be reliable hedges against risk, inflation and economic shock.

Already within the first quarter of 2022 – a total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains.

And that leads me onto Gold, which right now is hovering around the $1,920 level.

Interestingly, that’s the same level Gold was at near the start of March. But also the same level Gold was at two years ago in March 2020 – just before prices surged to new all-time highs.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Ghana imposes record interest rate hike to slow inflation

By Christian Akorlie and Cooper Inveen

ACCRA (Reuters) – Ghana’s central bank announced its biggest ever interest rate hike on Monday as it seeks to slow rampant inflation that threatens to create a debt crisis in one of West Africa’s largest economies.

The Bank of Ghana raised its main lending rate by 250 basis points to 17%, signalling an aggressive stance against the rocketing price of goods from flour to sugar to fuel, and against a depreciating local currency that has dented investor confidence.

It is the largest increase in Ghana’s history, according to government records, more than double the 100-basis-point rise predicted by a Reuters poll of 10 economists last week.

“The uncertainty surrounding price development and its impact on economic activity is weighing down business and consumer confidence,” the bank’s governor, Ernest Addison, told a news conference. “The risks to inflation are on the upside.”

Ghana was long seen as a rising star among Africa’s emerging market economies, but underwhelming oil revenues and supply chain disruptions amid the COVID-19 pandemic have dampened expectations.

Consumer inflation reached 15.7% year-on-year in February, the highest since 2016. Food, transportation and housing prices have seen the greatest spikes.

Restaurants and bakeries have downsized menus and laid off staff. The national taxi drivers union has threatened to strike over spiralling fuel costs. [L5N2VD7O1]

The war in Ukraine will likely make things worse. Ghana imports nearly a quarter of its wheat from Russia and around 60% of its iron ore from Ukraine, Addision said, though he expects inflation to return to its targeted band of 8% plus-or-minus 2% by the end of the year.

Meanwhile, Ghana’s cedi has weakened by about 20% against the dollar this year, making it the second-weakest currency after the Russian rouble in a list of some 20 emerging market units tracked by Reuters.

Addison blamed that in part on recent downgrades by credit ratings agencies Moody’s and Fitch, which he said shook investor confidence.

Ghana’s total public debt stands at $50.8 billion (351.8 billion Ghanaian cedi), according to central bank figures, about 80% of the country’s gross domestic product.

The central bank has made efforts to improve the situation. Monday’s rate hike marks the first time it has increased the prime rate twice within one year since 2015, after a previous one in November.

Economists have warned the fiscal deficit may spark a full-on debt crisis if more money doesn’t come in.

Ghana’s ruling party says the solution lies in a 1.75% tax on all electronic payments, locally known as the ‘e-levy’, a proposal so detested by the opposition that it caused a brawl in parliament last year.

Others have suggested a debt relief programme through the International Monetary Fund which Ghanaian authorities have so far resisted.

(Reporting by Christian Akorlie and Cooper Inveen; Additional reporting by Nellie Peyton; Editing by Edward McAllister and Emelia Sithole-Matarise)

Crude Length Cut to Eight-Month Low; Dollar Buying Resumes

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, March 15. A week where risk appetite stage a small comeback with stock markets rising despite a continued flow of troubling news from Ukraine, and US Treasuries staging a sharp reversal with yields on the 10-year notes surging 30 basis point as the market priced in an imminent but long awaited US rate hike. In commodities, the Bloomberg Spot Index gave back the bulk of the 11% gain from the previous week with selling seen across most sectors.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Spot index slumped by 8.3%, thereby giving back most of the gains seen during the first week of the Russian invasion. Russia-focused commodities like crude oil, palladium and wheat took the biggest hit in percentage terms. Overall the total net long held by managed money accounts across 24 major commodity futures was reduced by 5% to an eight-week low at 2.06 million lots, the biggest reductions seen in crude oil, natural gas, gold, silver, copper and coffee.

During 2021 the 30-day volatility on the BCOM Spot index traded within a 9% to 19.5% but since the war started on February 24, it has surged higher, reaching 31% last week, thereby forcing many hedge funds targeting a certain level of volatility to cut their exposure.

The jump has been led by spikes in energy, industrial metals and grains, all of which have seen volatility more than double. As long the volatility remains stable, trend and momentum following hedge funds will normally buy into strength and sell into weakness. The mentioned volatility surge helps to explain the current behavior where positions have been cut to pre-war levels.

Energy

Another week of extreme volatility in crude oil, this time a 22% move to the downside, drove a second weekly reduction in the combine WTI and Brent net long by 23k lots to a four-month low at 411k lots and just above the 400k lots reached in early December when crude oil briefly traded below $70/b in response to the omicron virus variant. Brent, the global benchmark saw its net long drop to a 16-month low at 153k lots.

As mentioned, when volatility spikes and traders are faced with rising margin calls on their open futures positions, the first reaction is to make an across the board reduction. This is currently very noticeable in the five oil and fuel contracts which have seen open interest fall from 7.1 million lots on March 12 to a current seven-year low at 4.7 million lots.

Monday am market comment

Crude oil (OILUKMAY22 & OILUSAPR22) rose to a one-week high in Asia as the war in Ukraine keeps global supplies very tight with traders, mostly through self-sanctioning, avoiding Russian crude, currently being offered close to 30-dollar below Brent with a limited number of buyers queuing up to secure cheap cargoes.

In addition, Middle East tensions also rose after Houthi rebels attacked sites across Saudia Arabia over the weekend. With supply tightening, the market will be looking for signs of demand destruction, mostly through the cost of diesel and gasoline as well as the impact of temporary covid related lockdowns in China.

Metals

Gold’s recent surge towards the 2020 record high and subsequent abrupt rejection helped drive a 5.5% correction and with that a relative small 16% reduction in the net long to 147.5k lots, the first weekly reduction in six weeks. Small in the sense that gold almost gave back all of its post invasion gains.

With most of the reduction being driven by long liquidation and a very limited amount of fresh shorts, this highlights a change that was primarily driven by leveraged traders forced to reduce bullish bets. Other big changes were a 41% reduction in the platinum long and a 31% reduction in the copper long to 29k lots and just below the average sized positions leveraged funds have held during the past year.

Monday am market comment

Gold (XAUUSD) & silver (XAGUSD) trade steady as investors continue to weigh monetary policy tightening in the US against the inflationary impact of the Russia-Ukraine war. Long liquidation from leveraged funds who had loaded up on gold futures in recent weeks may have run its course, while longer-term focused investors have been continuing buyers of gold ETFs since the war began.

During this time, total holdings have jumped by 134 tons to a one-year high at 3,246 tons, with more than half of the increase seen during golds recent 175-dollar correction. Gold as being bought as a hedge against elevated inflation and a central bank policy mistake with slowing growth potentially preventing the FOMC from carrying out its planned number of rate hikes before being forced to revert to a period of renewed stimulus. Key support at $1890/oz with a break above $1957 needed to signal fresh upside potential

Agriculture

Coffee long liquidation accelerated as it extended to a fourth week with the net long falling 26% to an eight month low at 29k lots. In sugar, a 4.8k lots small reductions followed the massive 79.5k lots jump the previous week.

Grains were the only sector seeing net buying and after four weeks of continued buying the total long across the six contracts tracked in this has reached a ten-year high at 803k lots. The bulk being held in the soybean complex (363k) and corn (373k) with the recently surge in wheat to record highs only a attracting a 67k lots position in the Kansas and Chicago wheat contracts.

Forex

Continued market turmoil and expectations for an imminent rate hike from the US Federal Reserve helped drive the first increase in bullish dollar bets since early January. The aggregate dollar long against ten IMM currency futures and the Dollar Index jumped by 53% to $10.7 billion.

On an individual level we find several major changes with biggest being a 68% reduction in the euro long to just 18.8k lots, the 40k lots reduction was the biggest one-week of net selling since June 2018. Specs also sold JPY (6.5k), GBP 16.5k) and not least MXN where 63.6k lots of selling, the biggest one-week reduction in two years flipped the position back to a net short. Countering these changes were buying of CAD (10k) as well as the antipodean currencies of NZD (16k) and not least the AUD where the 33.3k lots of buying, the biggest in seven-years helped reduce the net short by 43% to 44.9k lots.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire