Content summary
International precious metals fell sharply after surging last week. With Democrats in control of both the White House and Congress, a sharp rise in long-end US bond yields led to a rebound in real yields and a rebound in the dollar index, causing gold to fall nearly $130 from its peak. We believe that there are three factors that are not conducive to gold's continued sharp upward trend: 1) inflation expectations are still rising fast, reflecting in advance the extent of economic recovery; 2) the minutes of the Fed meeting show that once "substantial progress" is made, the Fed can begin to gradually reduce the size of its bond purchases, may withdraw the expectation of stimulus policy or guide nominal interest rates to continue to rise. 3) there is limited room for real interest rates to continue to decline in the long run. Given that consensus expectations have not yet been formed, gold is also likely to show wide volatility, and the risk of volatility weakening is expected to be high.
Base metals rose last week, and Ren copper hit a seven-year high last week. Last week, the US Congress officially announced that Biden won the election, while the Democratic Party won a majority in the Senate. The Democratic sweep will help Biden to prevent and control the epidemic, larger fiscal stimulus, clean energy, and so on, and benefit the market risk sentiment. The expectation of rising demand will be good for copper, nickel and other metals prices. On the supply side, Peruvian copper mines have been blocked by local protesters and copper concentrate exports have been disrupted again; on the demand side, manufacturing demand in the lower reaches of China has continued to pick up, driving explicit inventories on global exchanges to continue to decline. Looking forward to the future, the medium-and long-term rising logic of copper prices remains unchanged. In the short term, Lun Copper intensified bilateral volatility after breaking through $8000, breaking through last week's upward channel, and may step back on the support level of $7900 in the short term.
On the energy front, the crude oil market rose sharply last week when Saudi Arabia unexpectedly cut production and the Democratic Party won the Senate, with oil prices at their highest level since February last year. Saudi Arabia unexpectedly cut production last week, OPEC+ basically maintained its current production, and further contraction in supply boosted market sentiment sharply. In the medium term, vaccine promotion and epidemic prevention and control in Europe and the United States will still be the decisive factors in oil prices. Due to the current slow speed of vaccine promotion, oil prices may face the pressure of weaker actual demand recovery than currently expected in the late first quarter. The curve structure is significantly stronger, but the curve shows a depression, indicating that the expectation of demand recovery in the short term is still relatively weak. Market confidence has stabilized after the OPEC meeting, and oil prices are expected to remain high even if subsequent demand recovers weakly, but there is limited room for further upside.
On the agricultural side, the weakness of the dollar index and supply concerns continued to push soybean prices higher, while US soybean prices continued to hit a six-year high. The total export volume of US soybeans in the 2020 sales year was 54.77 million tons, an increase of 84% over the same period last year. It is expected that the hot Chinese procurement demand this year will continue to support the price of American beans. This week, we will focus on the first monthly supply and demand assessment to be released by USDA. The market expects USDA to reduce production expectations or increase demand expectations. In South America, the "La Nina" phenomenon still affects the market. Affected by the dry weather, soybean production forecasts in Brazil have been lowered and planting progress in Argentina has fallen short of expectations. Soybean prices are expected to fluctuate upwards this week, given the proximity to the $14 mark or resistance to some speculative bulls leaving the market, but the upward trend is difficult to reverse.
01 precious metal market
Last week, gold, silver and palladium in precious metals all rose at the beginning of the week, then fell sharply and closed lower that week, while platinum closed flat that week. Specifically, gold opened at $1905, then rose to $1959, fell as low as $1828 on Wednesday and closed the week at $1849, down 2.6 per cent. Silver opened at $26.77, peaked at $27.93 on Wednesday, then fell to $24.48, closing at $25.42, down 3.71%. Palladium, which opened at $2461, surged to $2525 on Tuesday and closed at $2376, down 2.94 per cent. Platinum opened at $1072 that week, touched as high as $1130 twice, ended the week at $1069 and closed flat.
The growing epidemic in the UK early last week led the British government to adopt stricter blockade measures, and the rise in risk aversion was good for gold prices. At the same time, gold was supported by a weak dollar and rising inflation expectations, which rose as high as $1959. The turning point came when Democrats won two Senate seats in Georgia. Because Democrats control both the White House and Congress, the market expects a larger stimulus package and bond issuance after Biden takes office, so US bond yields rise, driving up real interest rates and the dollar index. both of these factors are very bad for gold, which fell nearly $130 at one point.
In terms of speculative demand, gold ETF SPDR increased its gold holdings by 17 tons last Monday, but then reduced its holdings by 6 tons, while CFTC's speculative net long positions increased by 10446 hands last week.
At present, investors have great differences on the follow-up trend of gold. Market participants, including most foreign banks, still adhere to the logic of bullish on gold, believing that inflation expectations may rise further against the macro background of larger fiscal policy, monetary policy and negative interest rates, which is conducive to the rise of gold, so this round of gold decline is only a correction rather than the end of the bull market. Bears believe that the upward rise in nominal interest rates in the US dollar will drive up real interest rates, which is not conducive to the future trend of gold. We believe that the following three factors may be unfavorable for gold to continue to rise significantly: 1) although the epidemic is still serious, the progress of vaccination is slow, and the performance of non-agricultural data is poor, but inflation expectations are still rising faster, reflecting the extent of economic recovery in advance; 2) the minutes of the Fed meeting show that the path of economic development will depend on the development of the epidemic, and once "substantial progress" is made, the Fed can begin to gradually reduce the size of bond purchases. The expectation that the Fed may withdraw from the stimulus policy or guide nominal interest rates to continue to rise; 3) real interest rates are already at a historic low of-1%, real interest rates are less likely to remain negative for a long time, and there is limited room for further decline. However, considering that there is still no consensus among market investors on the follow-up trend of gold, gold may still have the same wide volatility as before, and the risk of shock weakening is expected to be on the high side.
In the first trading week of 2021, basic metals rose generally, of which Lunnickel rose 6.34% to US $17667 / ton, Len Copper rose 4.70% to US $8131 / ton, Lunzn Zinc rose 2.27%, Len Aluminum rose 2.12%, and Lun lead rose 0.38%.
On the macro level, last week, the US Congress officially announced Biden's victory, and incumbent President Trump promised a smooth transfer of power on January 20. The dust has finally settled after two months of entanglement in the US election, market risk sentiment is high, and risky asset prices have risen sharply. In addition, President-elect Biden's Democratic Party successfully won a majority in the Senate, paving the way for the smooth implementation of his policy propositions after taking office. According to his previous campaign propositions, Biden will promote epidemic prevention and control, larger fiscal stimulus, clean energy, and so on. The adoption of scientific epidemic prevention measures and the popularization of superimposed vaccines is expected to effectively curb the growing number of new cases in the United States, benefit market risk sentiment, promote trillions of dollars of fiscal stimulus, market re-inflationary expectations continue to rise, and superimposed by the Federal Reserve's bond-buying program, the dollar may continue to weaken, which is good for commodities. In the process of promoting clean energy, especially the electrification of cars, a large amount of copper and nickel will be used, and the market's expectation of rising demand will be good for the price of metals such as copper and nickel. On the data side, the ADP employment data and non-farm payrolls data released in the United States last week reached the worst level since April last year. The newly diagnosed novel coronavirus epidemic remains high, while vaccine penetration remains low, and risky asset prices strike a balance among deteriorating economic conditions and optimistic expectations driven by policies.
[copper]
Lun Copper hit another seven-year high last week, hitting 8238 US dollars per tonne in intraday trading. The current rise is still mainly driven by macro factors such as a weak dollar environment, re-inflation expectations and stimulus policy expectations. On the supply side, the Las Bambas copper mine in Peru has been blocked again by local protesters, leaving about 189000 tonnes of copper concentrate unable to be exported. With the stalemate, the mine is likely to cut production and other measures. At the same time, the country's mining industry as a whole shrank 3.06% year-on-year in November due to the impact of the epidemic. On the demand side, demand from China's downstream manufacturing sector continues to pick up. November data released by China show that the output of AC motors in the power industry rose 5% month-on-month, and the output of air conditioners in the home appliance industry increased by 6% month-on-month. Fixed railway investment in the transportation industry increased by 7% month-on-month. According to the China Automobile Association, sales in the auto industry are expected to be 2.8 million in December 2020, an increase of 1.2 per cent month-on-month and 5.4 per cent year-on-year. In addition, China's growing exports since the fourth quarter of last year also reflect the recovery in overseas demand. The recent extension of two credit policies for direct entities launched by the central bank has, to some extent, helped drive further growth in downstream demand.
In terms of inventories, explicit inventories in the world's three major exchanges continued to decline to 250000 tons, the lowest level since 2008, and the continued decline in inventories was mainly due to growing demand downstream of the country. in addition, the overseas recovery has to some extent boosted the export of domestic manufacturing, especially white goods. The inventory in the bonded area increased slightly to 458000 tons, the premium at Yangshan Port was relatively stable at a low level of 58 US dollars, and the import loss remained around 150 yuan. It is worth noting that the recent long-term curve of copper shows a strong discount (Back), after rising water (Contango), 3m before 3m. This result may come from the increase of miners' hedging of forward positions and the recent profit closing of a large number of bulls, and the increase of near-end lend, and far-end borrow makes the curve show an inverted V shape. According to the futures market data, the net long position of COMEX copper non-commercial position released by CFTC is still at an all-time high, slightly lower than the previous week, but the position is still crowded.
Looking forward to the future, the medium-and long-term rising logic of copper prices remains unchanged. In the short term, Lun Copper intensified bilateral volatility after breaking through $8000, breaking through last week's upward channel, and may step back on the support level of $7900 in the short term.
03 energy market
The crude oil market was driven sharply last week by unexpected voluntary production cuts by Saudi Arabia and a Democratic victory in the Senate, with oil prices at their highest level since February last year and Brent rising above the $55-a-barrel mark. Brent and WTI crude rose 8.09% and 7.67% to $55.99 and $52.24, respectively.
Saudi Arabia unexpectedly reduced production, and OPEC+ basically maintained its current production. Before this OPEC+ meeting, the market generally expected that the production reduction alliance will maintain the current production or a small increase in production. After the meeting, some countries, such as Russia and Kazakhstan, raised objections to maintaining current production, and the discussion had to be postponed to Tuesday. However, after a temporary stalemate in the negotiations, Saudi Arabia's voluntary production cut surprised the market, saying it would voluntarily cut production by 1 million b / d in February and March, respectively. After setting an example, OPEC+ countries also agreed to basically maintain current production, increasing production by only 75000 barrels per day in February and March, respectively. The further contraction in supply boosted market sentiment significantly, with oil prices remaining absolutely strong during the week and transactions in the spot market reflecting a sharp tightening in supply and demand expectations.
Similar stories, different endings. The timing of the meeting was similar to that in March last year, with oil prices above $50 and slight concerns about oversupply in the market, but this time Saudi Arabia learned the lessons of the last time and stabilized the production reduction alliance and market confidence at the expense of market share. different decisions have also led oil prices in different directions. However, it can also be seen from this meeting that as oil prices rebound, it will be more and more difficult for the production reduction alliance to reach a consensus. With WTI back above $50, the current oil price has been able to support the profitability of a considerable number of shale oil producers. Although the current recovery rate of active drilling in the United States is still quite slow, if oil prices remain strong, subsequent OPEC+ production cuts may be reduced to being married for others. On the other hand, the positioning of the oil industry in the United Arab Emirates, Russia and other countries is also quite different from that of Saudi Arabia, and they are more inclined to sell crude oil to achieve income as soon as possible in the context of global low-carbon.
The epidemic situation is still serious, and the speed of vaccine promotion is slow. In the medium term, vaccine promotion and epidemic prevention and control in Europe and the United States will continue to be the decisive factors in oil prices. At present, the epidemic situation in Europe and the United States is still severe, and some countries that have previously been well controlled have also rebounded in the winter, indicating that demand uncertainty is still high. On the other hand, vaccination is just in its infancy, with less than 1% coverage in Britain and the United States. The current daily vaccination volume in the United States is basically growing linearly at an average rate of 20, 000 per day, reaching about 400000 per day, but even if it can maintain the current growth rate, it will only be able to achieve vaccination for about 15 per cent of the population by the end of the first quarter, a far cry from the target of 70 per cent. As a result, in the latter part of the first quarter, there may be a weaker recovery in real demand than currently expected, and oil prices may also come under pressure.
The data are mixed and the curve structure is significantly stronger. Crude oil inventory data performed well last week, with both API and EIA crude oil inventories falling more than expected, but some of this may be due to the contribution of companies moving inventories out of warehouses to avoid taxes at the end of the year. On the other hand, refined oil inventories rose, while supply fell sharply, the lowest level since September, suggesting that the recovery in US demand is unstable. In terms of term structure, due to Saudi Arabia's voluntary production cuts, the forward curve strengthened sharply last week, and crude oil returned to the full-line forward discount structure again, but the curve showed a depression, indicating that expectations of demand recovery in the short term are still relatively weak.
Oil prices are expected to remain high. Market confidence has stabilized after the OPEC meeting, and oil prices should be able to hold steady at $50 even if subsequent demand recovers weakly. However, as the uncertainty of the epidemic is still high, the recovery rate of follow-up demand may be slower than expected, and the current oil price level of 55 US dollars per barrel has returned to the lower track of the normal range of oil prices before the epidemic, and the room for oil prices to rise further is expected to be limited.
Last week, the global soybean market generally rose, and the price of American beans continued to hit a six-year high. Last Friday, CBOT soybean March contract closed at 1374.75 cents / bushel, up 59.5 cents a week; the basis of the United States Bay area remained unchanged, No. 1 soybean spot price 1451.25 cents / bushel; Argentina Shanghe spot FOB quoted 509.2 U.S. dollars per ton, up nearly 11 U.S. dollars; big trading May soybean closed at 5847 yuan / ton, up 75 yuan. The weakness of the dollar index and concerns about supply continue to push soyabean prices higher.
Let's first pay attention to the situation in the US market. According to the USDA's weekly export sales report released at the beginning of the year, net sales of new soybeans in the United States hit an annual low of just 37000 tons in the week ended December 31, 2020. Although this has something to do with the natural decline in market transactions near the end of the year, it still affects market confidence, coupled with the fact that soybeans remain at a high level, and speculative bulls have taken the opportunity to leave the market, so soybean prices have gone up and down on Monday and Tuesday. However, it is worth mentioning that U.S. soybean exports totaled 54.77 million tons in the year ended December 31, up 84% from a year earlier, which is still a very good performance. At the same time, with the recovery of China's domestic pig farming industry, procurement demand from China is expected to be still hot, so in fact, we expect export sales to increase in the coming year and support the price of beautiful beans.
On the domestic demand side, squeeze consumption remains high. According to the monthly report released by the American oilseed processing industry association NOPA, the United States squeezed 191 million cattails of soybeans in November 2020, an increase of 9.1 percent over the same period last year. As Argentina's domestic soybean stocks are tight, the market share of South American soybean oil and soybean meal will decrease. Therefore, in the period before the launch of new South American soybeans, the North American crushing industry will have better market opportunities to increase crushing production, thereby driving up domestic soybean consumption demand in the United States.
On Tuesday, Jan. 12, the USDA's USDA will release its first monthly supply and demand assessment of the year, and the market expects USDA to cut production expectations or raise demand expectations. The final inventory of the previous report is expected to be 175 million cattails, and the market is generally expected to fall to about 140 million cattails. And if export demand and squeeze demand continue to rise, ending inventories are also likely to fall below 100 million bushels.
Looking at the balance sheet over the past decade, the last end-of-term inventory was less than 100 million bushels in 2013 and 2014. At that time, under the influence of the poor harvest in North America in 2012 and the decline in acreage in 2013, the stock of American beans fell sharply, causing the price of American beans to soar, and the price of beans in China and the United States rose to more than $15 in 2014. If inventories also fall to an all-time low this year, the price of beans is also expected to move above $15. Therefore, investors should focus on the monthly reports in January and February, and the forecast of the ending inventory will lay the price foundation for the first half of the year.
In South America, the "La Nina" phenomenon still affects the nerves of the market. Affected by the dry weather, the forecast of soybean production in Brazil was lowered, and the planting progress in Argentina was not as expected.
At present, the sowing of soybeans in Argentina has been completed by 87.5%, with an average progress of 89.6% in five years. If it is not completed in the past two weeks, then the remaining farmland may miss the sowing date of soybeans and switch to other crops. USDA had expected annual production of 51 million tons in Argentina, but now the market expects a reduction of 1 million to 10 million tons, of which the Buenos Aires Grain Exchange expects 46.5 million tons of soybeans to be produced in Argentina.
In Brazil, the weather in the main soybean producing areas is still dry, and there has been no rain in Mato Grosso, the number one producing area. The lack of soil moisture has caused various agencies to lower their Brazilian production forecasts, mostly by about 1-2%, but according to the current harvest in Brazil, the subsequent reduction is likely to increase gradually. At the beginning of the year, a farm in Mato Gross had harvested some early-maturing soybeans, and the yield was disappointing due to unstable rainfall during the growing season. The per unit yield of some of these farmland decreased by 18 cattails per acre, which is a big decline compared with the 50.7 cattail per acre yield in the United States. The main harvest period in Brazil will begin in the middle and second half of this month and will last until the end of February, with continuous attention to the changes in per unit yield in each producing area.
In general, judging from the fundamentals, the rising trend of soybeans remains the same, and the real relief may need to wait for the sowing of new crops, while the reversal of the situation will have to wait for the harvest of beans to ease concerns about market supply. Soybean prices are expected to fluctuate upwards this week, with some speculative bulls taking profits near the $14 mark, so soybean prices may encounter resistance around $14, but the upward trend is difficult to reverse. This week, focus on USDA data, may become a breakthrough in soybean prices.
