Market commentary: Commodities remain under pressure

Markets have been relatively mute, after Greece and China continue to quieten down. The main spotlights at the moment are the commodity slump and US earnings season, which is not providing any particular stimulus to markets, and trading volumes remain low.

Yesterday oil continued to slump considerably, with West Texas (WTI) falling to around $48 per barrel, now over 20% off its recent highs. The rest of the commodities market also continued to slump, with Gold closing 0.3% lower yesterday to a new five-year low of $1091/oz. Copper also tumbled 1.65% to a six year low, while Aluminum and Silver also shed over 1 percent.

Talk around the block is that weakness in commodity prices could impact the timing of the decision as to when the Fed will raise interest rates. US equity markets continued to trade softer with the S&P 500 closing 0.57% down and the Dow Jones down 0.67% as some top tier earnings releases continued to disappoint.

Caterpillar and Freeport-McMoran saw their share prices tumbling 3.6% and 9.4% respectively. Despite Caterpillar’s Q2 earnings returning in line with expectations, investors latched onto the bleak outlook posted by the company which also saw full year sales forecast slashed.

The company’s CEO stated that he saw mixed demand from various sectors which hasn’t been consistent and is not overly optimistic over the progress in the coming months. Typically investors look at large industrial companies like Caterpillar as an indication of how the broader economy is faring. 

It was a similar story for Freeport-McMoran, one of the world’s largest producers of copper and gold, who posted a better than expected earnings but warned of a struggling outlook for commodity prices. The company also mentioned that they may have to look at scaling back operations as a result. Relatedly, Dow Chemical also traded weaker following its earnings release with shares tumbling 4.6%.

General Motors traded up nearly 4% on a slightly more positive outlook for sales in China and Amazon shares surged as much as 17% higher in after-market trading after an unexpectedly strong earnings beat.

In terms of economic data, the US witnessed a 26k drop in initial jobless claims last week to 255k (vs. 278k expected). In the fixed income space, European sovereign yields continued to grind steadily tighter, as was the case on the local market. 10y Treasury yields also grinded lower.

On the local corporates scene, yesterday the announcement that GOs majority shareholder is looking to sell its stake in the company put its’ shares under pressure with the share price dropping to EUR 3.248 as of this writing, almost 10% lower than the high registered on the 17th July. The rest of the market traded relatively flat.

Looking at today’s calendar, this morning we had the flash July manufacturing, services and composite PMI’s for the Euro area and also regionally in Germany and France which disappointed. The decline in the headline composite output index, from 54.2 to 53.7, was slightly weaker than the consensus forecast of a dip to 54.0 and pretty much reversed June’s increase. The limited breakdown by country revealed falls in the German and (particularly) French composite PMIs.

We’ll also get the flash manufacturing reading for the US this afternoon while new home sales for June are also scheduled to be released. On the earnings front American Airlines is the notable release today.

This article was issued by Simon Psaila, Treasury Officer at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.