Contagion Warning: “There’s Nowhere Really To Hide” As Bloodbath In Commodities Continues

Oh, boy.

Well, it got worse for the beleaguered metals complex overnight. After a harrowing Thursday collapse, iron ore fell again in China, as futures in Dalian dove nearly 5% and the SGX AsiaClear contract (Singapore) headed for a 12% loss on the week, the largest since November.

Nickel racked up more losses, falling a third day as concerns dissipate over supply problems in the Philippines. Nickel for 3-month delivery was -0.4% to $8,975/ton by 10:13am on the LME. Earlier in the session it had hit its lowest level since June 24.

Copper mercifully traded little changed after falling nearly 5% in the worst two-day stretch since 2015, but the news there was hardly encouraging. LME said inventories climbed (another) 12% to 354,650 tons. That’s a goddamn 40% increase in 3 days, the most since March.

“We’re seeing some consolidating in copper after heavy falls this week,” SocGen’s Robin Bhar told Bloomberg by phone. “There’s clearly weaker demand with soft economic data from U.S. and China.” Yes, “clearly.”

As an aside, that would be the same Robin Bhar who warned earlier this week that algos were causing erratic price action in metals. To wit:

Price volatility has always been attributed to the impact that these fund players have and continue to have on metals markets. Periods of extreme price volatility are more frequent due to the increasing role being played by algorithmic players (algos) and high frequency traders (HFT).

Overall, the Bloomberg Commodity Index hit its lowest level in a year and is now “oversold” (want to dip your toe in and have it bitten right the fuck on off?).

And then there was oil.

Oh, yes there was oil. And it plunged some 4% to $43.76/bbl, its lowest since November.

Thankfully, both Brent and WTI were able to retrace their early collapse, but you should note that overnight trading was heavy – that’s unusual. Volumes for both grades were well in excess of the average as of about 4:20am London time, Bloomberg observed.

Also do note this headline:

• WTI CRUDE OPEN INTEREST ROSE TO RECORD 2.27M CONTRACTS THURSDAY

That’s according to preliminary Nymex data and it bests the previous high of 2.24m lots on March 14.

“With all the shale producers coming online in the States, it’s very much taking the wind out of the sails of the uptick we got from the OPEC agreement” James Audiss, a senior wealth manager at Shaw and Partners in Sydney lamented. “Also iron ore is having a decent move to the downside — it just seems like there’s nowhere really to hide.”

Right, so that’s all a lot of fun! Unless you’re long risk, in which case it’s a veritable nightmare. Remember what I said last night? To wit:

If, however, I did have “skin in the game” where that means “long risk,” one headline I would not want to wake up to at 4:30 a.m. EST is this one: “iron ore limit-down in China.“ Another bad one is: “entire metals complex plunges on China worries.”

That’s a fucked up way to start the day if you’re buying (figuratively and literally) the now ubiquitous reflation meme.

Yeah, well here’s what risk did while all of the above was playing out:

And S&P futs also tracked the plunge in Asian energy shares:

As you can see, we’ve recouped some of that, but the point stands.

The aussie of course came under early pressure from all of this with macro accounts adding to shorts. “The aussie’s drop is reflective of the weakness in commodity prices,” Janu Chan, a senior economist at St. George Bank in Sydney said. “The outlook depends on commodity prices.”

Most Asian emerging currencies fell, led by Malaysia’s ringgit.

I’m going to give you my unadulterated take on this: I wouldn’t worry so much about that goddamn NFP report that everyone will spend all day Friday parsing.

You need to worry about everything described above, because there’s some contagion risk in there.

And “bigly.”