The peso ended September with a depreciation of 3.21% or 60 cents, trading around 19.38 pesos per dollar,
standing as the currency most undervalued among dollar main pairs and the second most depreciated between
the emerging economies currencies, behind the Philippine peso. During the month, the peso began to lose ground
due to speculations related to the Federal Reserve monetary policy. This depreciation was emphasized when
Donald Trump began to gain ground against his contender, Hillary Clinton, because of news about a deterioration
in her health. In the month, the exchange rate reached new highs in six sessions, reaching a maximum of 19.93
pesos per dollar, a few hours before the first US presidential debate.
Crude oil prices ended the quarter trading sideways. The WTI ended with a marginal decline of 0.68%, trading at
48.00 dollars per barrel, trading in the channel between 39 and 49 dollars per barrel. Meanwhile, the Brent
showed a moderate decline of 1.24%, trading at 49.06 dollars per barrel, remaining between 41 and 52 dollars
per barrel.
It is noteworthy that during the quarter, oil showed mixed results. On the one hand, in July, the WTI showed a
decline of 13.93%, its biggest drop since July 2015, while Brent shrank by 14.53%, being its biggest drop since
December 2015. This decline was due to an increase in oil production worldwide, as well as a drop in oil demand.
Moreover, speculation about an increase in the US federal funds rate, as well as the increase in the US dollar
boosted the decline in prices.
However, in the last two months, oil prices has strengthened. During August and September, the WTI showed an
increase 7.45 and 7.36% respectively, while Brent increased 10.79% and 4.29%. Such increase was due to the
speculations about the informal meeting held in Algeria from September 26 to 28.
Nonetheless, downward pressures remained dormant. On the one hand, the International Energy Agency (IEA)
reported that oil oversupply will last until the first half of 2017, since oil production continues to increase, while
oil demand will be 1.3 million barrels per day , below the previously estimated of 1.4 million. In addition, the EIA
raised its 2016 and 2017outlook for domestic oil production, to 8.77 million barrels a day and 8.51 million barrels
respectively. On the other hand, the Iranian Oil Minister reaffirmed that the country is seeking to recover its OPEC
producer share, which is between 12% and 13% of the total production, this means that the country will increase
oil production to around 4.4 million barrels per day. Currently the country is producing around 3.6 million barrels
a day.
It is important to mention that during Wednesday, the OPEC members reached a preliminary agreement to cut
their joint oil production in a range between 32.5 and 33 million barrels per day, its first cut in eight years. It is
expected that the details of the agreement will be discussed at their next formal meeting on November 30 in
Vienna. However, despite the observed increase in price, it is highly likely that this increase will not be sustained.
The cut in oil production will increase the commodity price causing other producers outside the cartel to increase
its oil production. Moreover, oil and energy demand remains weak. Looking forward, it is expected that the WTI
will quoted between the channel of 45 and 50 dollars per barrel, while Brent will quote between 46 and 51 dollars
per barrel.
Gold ended the quarter trading at 1,317.42 dollars per ounce, showing a marginal loss of 0.36%. However, during
the quarter the metal traded with mixed results.
On the one hand, in July, gold ended with an increase of 2.18% due to an increase in the instability of the world
economy. It was also noted an increase in uncertainty by market participants as a result of the Brexit. In addition,
region statements, during the announcement of the European Central Bank monetary policy, where he confirmed
that the ECB is ready to intervene with further stimulus if negative effects on the economy existed, boosted gold
profits.
An increase in monetary stimulus causes gold demand to increase, because it became more attractive for
investment, while a negative economic outlook increases the demand for shelter.
However, a greater risk appetite, as well as the vowing of Theresa May as the United Kingdom Prime Minister of
caused a lower demand for gold. Moreover, the prospect of a hike in the US benchmark rate increased, causing a
strengthening of the US dollar against most of its major crosses.
It is important to mention that even though the Federal Reserve kept the US federal funds rate unchanged
between 0.25% and 0.50%, the prospect that the US economy is on a positive path, and the restrictive comments
from some Fed officials including Janet Yellen, prevented the gold price boost its gains. A tight monetary policy in
the United States limits the demand for gold because it makes the rates of return offered by other assets more
attractive. Furthermore, the US currency strengthens, which makes gold less affordable to investors holding other
currencies.
Looking ahead, gold price could be benefited by an increase in volatility, tension and risk aversion that the US
electoral process may bring. An increase in the likelihood that Donald Trump wins the presidential elections, could
cause gold to recover ground. However, if Hillary Clinton wins the presidential election on November 8, and since
the Federal Reserve will continue with the normalization of its monetary policy. It is expected that gold quoted
with a downward trend in a channel between 1,300 and 1,335 dollars per ounce.
Copper closed the quarter trading steady at 4,848 dollars per metric ton, the equivalent to a marginal increase of
0.17%. However, during the quarter, copper quote with mixed results.
Copper gains were due to a better outlook on the Chinese and US economies. Moreover, a setback in the copper
supply worldwide was observed. According to the warehouse followed by the Shanghai, London and New York
stock exchange, during the quarter, inventories fell by 29.15% or 168,715.98 to 410,068.16 metric tons
However, gains were limited due to the uncertainty caused by the Brexit and concerns about copper
fundamentals. On the one hand, imports of refined copper in China fell 23.99% to 232.066 metric tons.
Furthermore, speculations about the normalization process of the US monetary policy strengthened the US dollar
accentuating copper losses.
However, copper downward pressures remain dormant, due to oversupply in the market. Moreover, the prospect
of an increase in the Federal Reserve benchmark rate continue pushing down the metal price. Copper is expected
to continue its sideway trend in the channel of 4,872 and 4.835 dollars per metric ton.
Finally, steel futures ended the quarter trading at 495 per ton. During the quarter, iron rose 0.36% and finished
trading at 55.86 dollars per ton, while lead closed at 2,120.75 dollars per metric ton, with a quarterly increase of
18.79%.
Corn and wheat ended the quarter with losses, showing a decline of 6.13% and 6.79%, trading at 3.36 and 4.02
dollars per bushel respectively. However, during the quarter, grains traded with mixed results. In July and August
the price of corn fell by 6.76% and 9.87%, while wheat fell by 5.45% and 11.47% respectively. The decline in corn
and wheat price, is related to an oversupply in the international markets. While demand for the grain remains
weak. Although during the quarter, grain prices fell, it is important to mention that in September corn and wheat
showed an increase of 11.69% and 11.36%, respectively due to an improvement in the fundamentals perspective.
During the quarter, a fall in US corn and wheat demand was observed. According to the United States Department
of Agriculture (USDA), from June 30 to September 22, corn exports have fallen by 238,000 metric tons, or 29.27%.
If corn production in the United States advance to a maximum of 174 bushels per acre, grain prices could drop
between 3.0 and 3.2 dollars per bushel. Moreover, US wheat inventories showed a decline of 30.84% or 254.50
metric tons in the same period. In addition, the USDA reported that during the third quarter, corn inventories in
that country fell by 63.12% to 1.737 billion bushels, while wheat inventories increased by 159% to 2.526 billion
bushels.
It is noteworthy that Egypt, world's largest wheat consumer, canceled its policy of zero tolerance of common
fungus in grain imports to the country.
Gabriela Siller Pagaza PhD
[email protected]
* This document has been prepared for INFORMATIONAL PURPOSES ONLY and based on information and data from sources considered reliable. However,
Banco BASE assumes no liability for any interpretation, decision and / or use any third party based on the information contained herein. This information is
intended to be solely a support tool for Banco BASE customers as well as prospective clients and at no time shall be used by any third party for political,
partisan and / or any other similar purpose.