It’s been a tough week within the commodity space. Unless you were already short of oil and precious metals, hoping for an extension of mid-April downtrends. Or managed to call the bottom and profit from oil’s 5% rebound. Or called a swift bearish reversal in copper and iron ore that dragged peer metals and their respective Miners lower to hamper the UK 100 .

What drove oil lower? Firstly, the energy commodity is troubled by concerns that an OPEC-led group (incl. Russia) will struggle to agree on extension to its current production cut agreement. In much that same way it faffed around last year to arrive at an agreement in the first place. After all, the cuts have failed miserably to offset rising US production and buoy prices. In fact we have come full circle, prices back where they were late November before the agreement was finally struck. An OPEC meeting at the of this month will be absolutely crucial, actions in demand rather than merely supportive rhetoric. Hopefully members will have learnt their lesson, choosing to offer clear rather than mixed messages which only went to fuel  oil price volatility for much of last year.

As for precious metals, they have merely extended mid-April downtrends as demand for safe havens Gold and Silver wanes. This was fuelled by an equity market rebound, which in several cases took major indices to fresh record highs, amid reduced political risk. The UK PM called a snap election she looks set to win, strengthening her hand on Brexit at home. Macron won the first round of the French Presidential election and looks set to beat Le Pen in the second round run-off on Sunday. Trump has finally shown signs of progress, getting his healthcare bill through the lower house of Congress. Even a weaker Dollar, which makes metals cheaper, has offered no help, because a stronger US economy merely puts the Fed on track to keep raising US interest rates, making the non-yielding yellow metal comparatively more expensive to own. Today’s decent US Jobs report even increased the probability of a fed rate hike next month to a near certainty.

Among base metals, Copper and Iron have had a torrid time of it this week retracing recent rebounds to re-test major support going back almost six and twelve months, respectively. The driver was disappointing PMI data from China (Manufacturing, then Services) that sparked fears that its economy isn’t quite so healthy as thought, as authorities try to rein in the credit and speculation that fuelled the economy’s recent growth and stabilisation, and investment plans are shelved. Complication of supply and demand dynamics has  thus seen markets begin to worry again about another supply glut for metals, like we are facing with Oil. If anything, revived China fears have seen metals and oil price weakness feed off each other, highlighting the interlinked nature of financial markets and how relationships result in knock-on effects. Look at the charts for Gold, Silver, Oil, Copper, Iron Ore, Zinc, Nickel, Aluminium and Lead. Many of the same hallmarks.

It’s not often I write so much on commodities, however, there is just as much trading potential for clients here as there is in equities and indices. After all if you are trading the UK Index Miners, you likely have a view on the price direction of what they dig out of the ground. If you trade the Oil majors, you will already be keeping a keen eye on what the barrel price of the black stuff is doing. Some people trade the underlying and hedge with the Miner. Some do vice-versa. Whatever you do, you probably want to know what’s going on within the markets than count, in real-time, with a broker who knows you and a research product dedicated to the short-term.

Get access to our research permanently to see what you’ve been missing out on. Take it a step further and try out the service from our excellent broker team. See why we were recently voted Best CFD Research Service and retained the title of Best CFD Provider for the ninth straight year. It’s not just a commodity, it’s all in the detail and personal service.

Mike van Dulken, Head of Research, 5 May 2017