Commodities sold off across the board on Friday – with the modest exception of gold – as fears about the new Covid variant hammered confidence and raised concerns about global economic growth in 2022.
In ways it was a rerun of the first quarter of 2020 as Covid appeared and then swept the globe.
The damage to commodities was almost complete. Apart from gold, rural commodities like wheat and corn hardly moved – we always have to eat, as the first waves of the pandemic proved.
The spread of cases on the weekend – including at least two in Sydney – will remind investors and others that the Covid threat continues and isn’t over as all the talk of a strong rebound and high vaccination levels would have us believe.
ASX futures fell 104 points in trading offshore on Friday night and Saturday morning and news of the two cases of the new variant will add to the negativity for investors today.
The US dollar rose and the Aussie dollar dipped further under 72 US cents to close at 71.23 US cents and close to a 12-month low.
Oil was hammered. West Texas Intermediate shed 13% to settle at $US68.13, Brent crude slumped more than 11% to end at $US71.59 a barrel. That will take a chunk out of global inflation if these lower levels are sustained.
Shares in airlines, cruise and other travel and tourism related businesses were slammed in the US and Europe on Friday, adding to the already growing gears from the upsurge in Covid Delta cases and lockdowns in Austria, the Netherlands, parts of Germany and several other countries.
Investors know that these sectors were whacked in earlier waves of the pandemic so it was natural that they became the early targets for concerted selling.
Because of rising vaccination levels – especially in major economies – the chances are remote of a repeat of 2020’s oil wipeout (when US WTI plunged to a low of minus $US37 a barrel).
But that will depend on just how dangerous this new variant is and whether it can defeat those vaccines.
But the new variant could very well whack the recovery in demand and the much-forecast surge in 2022 when international travel opens up and grows (producing a jump in jet fuel demand and production and a rise in demand for crude oil).
That fear is why oil plunged more than 10% in the space of a few hours on Friday.
Comex gold edged up to settle at $US1,785.50 an ounce and then rose above $US1,792 in late trading, silver fell 1.4% to $US23.107 an ounce.
Copper on the London Metal Exchange (LME) shed 2.9% to $US9,474 a tonne in official trading. Copper for delivery in March was down 3.9% on the Comex market in New York, touching $US4.28 per pound ($US9,416 per tonne). That was a fall of 4% on the day.
LME aluminium lost 4.2% to $US2,601 a tonne, zinc shed 3.1% to $US3,197, lead was down 0.4% to $US2,261, tin eased 0.5% to $US38,600 while nickel slid 3.7% to $US19,895 a tonne.
In Chicago corn rose 1.2%, soybeans fell 1.1% and wheat drifted 1.3%. That was mostly due to hedge funds selling positions to go into cash.
Iron ore’s rebound was halted in its tracks on Friday with a solid 10% to 15% rise over the week slashed.
The price of 62% Fe fines delivered from the Pilbara to northern China fell more than 6% to $US91.97 after reaching above $US100 a tonne on Thursday for the first time this month.
The slide in commodity prices left blood all over quoted miners and energy stocks around the world.
Shares in copper and base metals-producing miners reflected the slide.
BHP Group fell 3.1% after a 1.5% drop on the ASX, Glencore plc was down 6.5%, Freeport-McMoRan dropped 5.4%, and Southern Copper was down 3.6%. First Quantum Minerals fell 9.4% on the day.
Anglo American shares stood out with an 8% slide and Rio shares fell 3% in London after a 2.2% drop in Australia.
Fortescue shares shed 3.8% in Australia on Friday.