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Do not be fooled by the relative calm of financial markets: entries into the global supply chain are intermittent warning signs
Commodities have moved closer to the correctional territory, with 10% drop since your last peak. With the resurgence of the dollar and persistent tensions in world trade, commodities remain under pressure. Recent benchmarks include copper dropped to less than US $ 6,000. West Texas Intermediate crude received $ 70. while gold collapsed to US $ 1,220
Metal movements, in particular, are key for investors. Prices in the sector can be used to predict the pace of global growth ahead of other measures, such as business surveys or business data. According to economist Tom Wise of the Bank of England, it would have appeared a rebound early 2016, for example. Most forecasters did not do it.
"Metal prices are punctual, highly correlated with global economic activity, and predict short-term movements in GDP," Wise said. in a survey published in the blog of the central bank. "Consumption is changing very closely with GDP."
The fall of the Bloomberg Commodity index approached 10% of its nearly three-year high in May. Here is an overview of how the sale of sales feeds other badets
Impacts on the stock
The movements are clearly visible on the stock markets, and the miners got the worst results from the # 39 Euro Stoxx 600 this month. 19659002] It is foreseeable that the mining sector is very exposed to metal prices, but the dependency increases. A 10% move in the LMEX six base metals index was a 7% move in the Stoxx Europe 600 Basic Resources sub-index over the past year. According to data compiled by Bloomberg, this ratio is the strongest of the last decade
FX Effects
Low commodity prices are spreading to the currencies of producing countries.
Commodity Bloomberg Commodity commodities are down since May, with only futures of cattle, cotton and orange juice against the trend. Copper, which has often been used as the engine of the global economy due to its broad-spectrum industrial applications, has fallen by 18% over the period.
The same picture is exposed in emerging market currencies, where it fell 21 out of 24 followed by Bloomberg. The biggest losers include countries such as South Africa, a producer of base and precious metals and coal; Brazil, which exports iron ore, agricultural products and petroleum products; Chile, a major producer of copper; and Russia, which depends on natural gas, metals and other commodity exports.
"An impending trade war and uncertainty surrounding Chinese demand are weighing on commodity prices and related currencies," Georgette Boele said. currency and metals strategist at ABN Amro Bank NV. "As long as China remains nervous, commodities will continue to be exposed to trade war."
In a vicious circle, the currencies of producing countries and commodities not only face the threat of a slowdown caused by protectionism. also the strengthening of the dollar, which rose for the third day Thursday. The dollar is recovering from the trade dispute as US growth remains strong and investors are turning to US badets.
Emerging Pain
The recipe for other badets of the developing nation is toxic. The correlation between the Bloomberg commodity index and the MSCI Emerging Markets stock index is strengthened: in April, it reached its highest level in more than five years when it was measured in 120 days
. Commodities can be a sudden change in sentiment that has little to do with fundamentals. Analysts at ING Bank NV and Commerzbank AG believe that mbad selling is approaching their fund and expect prices to recover in the last quarter of the year when hostilities commercial war will mitigate.
and expect a strong against the move once the situation subsides, "said Daniel Briesemann, an badyst at Commerzbank, by phone. "Many speculators have already withdrawn their positions, so the base metals against them have clashed and started to decline." In addition, the fundamentals show in most cases narrow markets. "
In the meantime, the transfer of basic prices to other markets is not easy because the raw materials have a dual role of cost of inputs and also the barometer of demand. lower, they can fuel the real economy, fighting inflation and possibly facilitating monetary policy, which could ultimately help financial badets.
"Potential damage to the economy. "The global economy is expanding beyond trade," said Jon Harrison of TS Lombard in an e-mailed note. "Uncertainty can already discourage investments in emerging markets and emerging badets. US threats of further escalation, even if the threatened actions are ultimately not implemented. "
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