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Commodity markets on alert as Hurricane Irma nears

Summary:

  • Hurricane Irma is forecast to be much more powerful in comparison to Harvey
  • Hurricanes’ damages could potentially ease to raise the US debt ceiling
  • Key markets which could be afflicted the most by Irma

Weather in some parts of the US has been exceptionally dangerous of late. While losses after the hurricane Harvey have not yet to be added up, another much more powerful hurricane Irma is nearing the East Coast of the US. According the forecasts provided by the US National Hurricane Center, Irma could proved to be yet more menacing in comparison the Harvey.

link do file download linkIrma is closing in on Florida which is followed by another tropical storm Jose. Source: Bloomberg

Irma has been already upgraded to a category 5, the highest measure on the five-step Saffir Simpson scale. As per the above graph, the hurricane seems to be on track to affect parts of Dominican Republic, Haiti, virtually the whole of Cuba before striking a southern part of Florida. 

Bad weather conditions could paradoxically ease to increase the US debt ceiling, being the limit on the amount of debt which the US Treasury can issue. Let us remind that if there is no an extension of the limit, it could lead to a technical default. Under such bleak circumstances, the US Treasury would start missing payments on financial obligations. By and large, that issue (lack of a technical default) could be the USD-conducive, albeit other impacts of Irma could be less beneficial for the greenback.

link do file download linkThe US dollar along with yields declined 12 years ago when Katrina struck. Source: Bloomberg

As far as markets are concerned, there are some key ones being especially threatened. First and foremost, it’s worth mentioning what happened with some markets 12 years ago when Katrina struck the US. By the way, let’s add that some forecasts suggest that Irma’s damages may even surpass those seen after the hurricane Katrina. Based on the chart above, one may notice that there were substantial drops in terms of US yields which dragged the greenback down. Simultaneously, oil prices moved up whereas the SP500 (US500 on xStationn5) tumbled. To be precise, cruise lines and insurance stocks could be among the most afflicted within the US500. Thus, a similar scheme could take place this time, however moves and their ranges could differ.

Moving on, oil prices (WTI) could gain a foothold in the aftermath of Irma. Firstly, the US grade of oil has begun erasing their losses which have been made after Harvey. Even as the previous hurricane brought about declines of WTI oil prices, mainly on the back of widespread outages seen in refineries in Texas, this could not be the case in terms of Irma as it is forecast to strike those parts of the US which are not so significant for the oil market. What’s more, the WTI could be additionally enhanced by reports suggesting that more and more refineries are getting back to work after being closed due to Harvey’s disruptions.

link do file download linkA weekly technical view suggests that oil prices could be commencing a more extended corrective move to the upside. A long shadow marked in the prior’s week candlestick might be a clear sign of bears’ fatigue. If so, buyers could aim at $50 being preceded by $52. Source: xSstation5

Cotton could be another market being affected by Irma on potential crop damages. Let us pin down that key crops are located in Georgia and Carolina - two states being relatively close to the Irma’s projected path. As a result, cotton prices skyrocketed yesterday and could eye a pivotal resistance in the nearest future.

link do file download linkCotton prices jumped yesterday on concerns that the hurricane Irma could damage crops in the two key states. $76.5 could be the nearest target for bulls. If that level is broken, a rally could run into another one placed at $79.5. Source: xStation5

Last but least market being under threat is orange juice. The price of the commodity for November delivery jumped as much as 6.2% yesterday which is the biggest gain since May 2, 2016. Let us explain that Florida is the nation’s top orange producer, so an impact on prices is obvious.

To sum up, quite a broad range of markets has already been or could be afflicted by the oncoming hurricane. Given that Irma is closing in the US, it’s worth keeping a close eye on miscellaneous revelations as they could exert hefty impacts across the above-mentioned markets.

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