July 20, 2012

Week In Review: Geopolitics Fuel Brent Rally, NatGas Holds Above $3, Corn & Soybeans Break Records

Details

We examine the latest developments in commodity markets and the week’s performance.

Metals fell, but other commodities rose in a choppy week of trading. News flow was mostly bearish, but risk assets were buoyed by hopes of stimulus.

Even if the economic landscape deteriorates further, central banks will step in with new measures to support growth— that is the consensus view in markets and perhaps why risk assets are performing so well in the face of seemingly negative news.

U.S. stocks, rose less than 1 percent on the week and are now up 8.5 percent year-to-date, based on the S&P 500.

Macroeconomic Highlights
The most-watched macro event this week was testimony by Ben Bernanke to Congress. But the Fed chairman’s comments did not move markets, as he reiterated generic statements about how the central bank is ready to take action to support the economy if necessary.

Some had hoped for a clear signal of more monetary easing, such as an announcement of a third round of quantitative easing (QE).

In this week’s U.S. data, retail sales in June tumbled 0.5 percent, sharply underperforming expectations. That was the third-straight month of lower retail sales and another data point in favor of more action by the Fed.

In Europe, news flow was also discouraging. Concerns about the health of the Spanish banking system reignited interest rates in the country. The Spanish 10-year bond yield spiked to 7.28 percent—matching the record high set last month.

Commodity Wrap

• Corn prices finally reached new record highs this week as the grain surged past $8/bushel on familiar weather-related supply concerns. The NOAA said that the ongoing drought in the U.S. is the worst in 56 years.
  
  In its Crop Progress Report on Monday, the USDA said that only 31 percent of the U.S. corn crop was in good-to-excellent condition, down from 40 percent the week before. Only 34 percent of the soybeans crop was in good-to-excellent condition, down from 40 percent.
  
  “There certainly is an opportunity for this to get much, much worse,” said Greyson Colvin, founder and president of Colvin & Co. LLP, an agriculture-focused investment manager told HAI in a recent interview.
  
  From a technical perspective, corn and soybeans have no limit to their upside. Initial support lies at $7.50 and $16, respectively.
  
  While wheat is still well off its record highs from 2008, it has also made a parabolic move to the upside. The grain should perform just as well as its peers, as it benefits from substitution at the expense of corn and supply problems of its own in Europe.

CORN

SOYBEANS

WHEAT