Commodities: Still Heading Lower?
Commodity markets have been posting losses for several days now, with the CRB Index declining for most part of this week. The index declined from approximately 250, to a low of 231 yesterday, before bouncing slightly to 233. Weighing down on the CRB has been oil, (which has approximately a 30% weighting in the index). Front-month Brent crude has declined precipitously in the past trading sessions (as shown below), and has broken below key trendline support at US$60.00/bbl. From here, a weekly close below US$60.00/bbl would presage a move to US$58.00/bbl, a break of which could see oil decline to the US$48.00/bbl area in coming trading sessions. Such an event would be more likely if key equity markets were to continue declining, which I highlighted in this space a few days ago.
Front-Month Brent Crude, US$/bbl
Base metals look particularly weak. Three-month copper, nickel, zinc and tin have all broken below key support and could be heading further south. The outlier however, is lead. While the metal is testing key support, it has yet to break lower. Given that the metal is still up 88% from its lows, I caution that a correction could be significant.
Three-Month Copper, US$/tonne
Its Not All Gloom…
Despite the poor technical outlook for base metals, I still believe selectivity is important. I think front-month wheat could provide a potential entry point for investors. From a technical perspective, it looks like it is basing, and a break and close above USc500/bushel could herald further upside. Furthermore, fundamentals have become slightly more supportive. The United States Department of Agriculture WASDE report recently stated that global ending stocks are projected 1.4 million tons lower than last month, which reflects a slight tightening of the market. Moreover, India is recording a late start to its monsoon period, which will likely negatively affect its crops. Rainfall in the north-western states is said to be below normal levels, and this is where the bulk of the country’s wheat and rice is produced. These two factors will be price supportive going forward.
Front-Month Wheat, USc/bushel