Palladium Plummets To New Lows

We’ve spoken extensively about the car industry over the last eighteen months. Many key factors impact the industry, including worker strikes and low inventories. However, they’ve essentially resulted in about two core themes. πŸ‘‡

The first is that the demand side of the market is being impacted by higher financing costs and record prices, crushing affordability. While on the supply side, low used vehicle inventories and a slow ramping up of new vehicle production have caused dealers to struggle.

As a result, we’ve seen effects on the stock prices of automakers, car part retailers, car retailers (or rental companies), and many other related businesses. πŸš—

One area that’s not been talked about as much is the palladium market. The commodity plays a significant role in new vehicle production, being used to make catalytic converters that transform toxic gasses into less harmful substances. ♻️

With that said, the commodity has been under pressure because of several factors. The first is the new car market’s slow recovery from its pandemic supply chain issues. Additionally, automakers switching to platinum as a cheaper alternative has reduced demand. And lastly, the electric vehicle industry is eating into the market for light vehicles, where palladium plays its most significant role.

These factors have led to a nearly 70% decline in palladium futures, which peaked in March 2022 and have been trending lower since. πŸ“‰

Prices recently attempted to stabilize but were unsuccessful and are now trading at five-year lows. It’s unclear what it will take for this trend to reverse, mainly because it’s a thin market dominated by commercial users and speculators who primarily employ trend-following strategies. 🀷

Oil Returns To The Status Quo

The U.S. oil market is returning to its pre-pandemic norms, at least according to the manager of the popular oil ETF $USO. πŸ›’οΈ

The United States Oil Fund ($USO) has been around since April 2006 and is a futures-based ETF that looks to track the price of U.S. crude oil. It does so by purchasing the front-month sweet light crude oil (WTI) contract, holding it, and then rolling its holdings to the following contract before expiration.Β 

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Palladium Pops In “Dash For Trash”

One of the key themes we’ve discussed since early November is money looking for a new home in beaten-down areas of the market. That theme continued today with the Federal Reserve confirming the market’s rate cut bets with a dovish statement and projections. πŸ’Έ

We saw significant rallies in stocks like Carvana, Upstart, SoFi Technologies, Lucid Group, Rocket Companies, and many more highly-shorted names. But it’s not just happening in the stock market. Assets across the board rallied, including one of this year’s worst performers, palladium.

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The Market’s Next Show Stopper

While the U.S. economy continues to hold up relatively well, investors remain fearful about China and other international economies. So, one of the markets they’re watching for clues as to what might be ahead is copper futures. πŸ•΅οΈβ€β™‚οΈ

We spoke about copper in May when investors viewed its selloff as a bearish economic diagnosis. And now, it’s back in the news for a similar reason. πŸ“°

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Natural Gas Is Moving Fast

Okay, maybe not fast. But it certainly is moving differently than it has been. After falling about 80% from its highs from August to March, natural gas futures have been taking the first step to reverse their trend…stop going down. ⏸️

Below is a daily chart of natural gas futures trading in a $2.00 to $2.65 range for the last five months. But this week, traders are putting it back on their radar due to its strength relative to the rest of the energy commodity complex. With crude oil, gasoline, and heating oil all falling several percent this week, natural gas’s nearly 5% gain certainly stands out. πŸ€”

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