Since the beginning of February, the discount of WTI to global prices has fallen quickly, primarily because of changes in pipeline infrastructure that has brought cheaper mid-continent crude oil to the U.S. Gulf coast.
The PGM metals — platinum and palladium — are typically highly correlated assets. However, since February of this year, they have diverged, with palladium pushing toward the highs while platinum has languished.
Tapering and tightening are not the same thing. Tightening is tantamount to stepping on the brakes, while tapering is akin to easing up on the gas pedal. Whether this analogy holds true depends on which “effect” the market is more sensitive to.
In an environment of unprecedented accommodation, even a hint that the money printing will be curtailed can act like a tsunami on financial markets. Despite the headwinds, there are markets where traders can find refuge, an oasis where commodity-specific fundamentals prevail.
The sharp rally in 10-year U.S. Treasury yields seen since the start of May has pushed bond yields above the average dividend yield for U.S. equities, removing one of the strongest tailwinds supporting the rally that took the S&P 500 to new all-time highs.
Within the commodity space, perhaps the most bullish fundamentals belong to the Platinum Group Metals. Both platinum and palladium have similar industrial and commercial uses as well as demand growth, and both suffer from a less than secure supply.
Investor sentiment continues to strengthen, and nowhere is that more evident than in Europe — the new darling of mutual and hedge fund managers. The past 15 weeks have seen more than $22 billion pour into European equity markets, in the longest stretch of uninterrupted inflows since 2002.
The Japanese yen and benchmark Nikkei 225 equity index both broke out of significant consolidations last week. The moves are highly related; in fact, the negative correlation between Japanese equities and the yen has been incredibly consistent over time.