Commodity Monthly Monitor – Investors remain bullish on commodities
Your reference guide to commodity markets. Includes the latest outlook for each commodity sector and major developments for individual commodities.
Summary
- Cocoa surplus drives record shorts.
- Policy continues to dictate industrial metal prices.
- A short-term pull-back in oil should precede gains if capex cuts bite later this year.
- Precious metals prices re-ignited by inflation and political risks.
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Aggregate net speculative positioning across all commodities hit a record high last month, highlighting the strength of bullish sentiment toward the asset class.Consumer price inflation in the US surprised to the upside last month and we believe will continue to remain elevated as higher energy prices today will place upward pressure on the consumption basket.
Fed fund futures indicate the market does not share the Fed’s view that there will be three rate hikes this year (market is pricing in two hikes). We are likely to see real interest rates remain low if not negative in such an environment. That will be positive for gold and silver, which are negatively correlated with real interest rates.
The US dollar is likely to remain soft in the first half of the year, which is positive for the broader commodity complex. Global manufacturing PMIs are at 34-month high, providing a strong tailwind for industrial commodities. With less than a 5% further gain in the index, PMIs could reach a 6-year high.
Meanwhile supply of several industrial metals are threatened by policy changes and strikes. It is not surprising that industrial and precious metals have lead the commodity complex higher this month.
Oil continues to trade at the top of the trading range despite the strong supply response we have seen from the United States. The market has been encouraged by a 90% compliance rate toward the production cut from OPEC countries, but more than a 100% compliance rate would be needed to sufficiently absorb the overhang of inventory. We believe that risks remain skewed to the downside for oil prices in the short-term.
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The analyses in the above tables are purely for information purposes. They do not reflect the performance of any ETF Securities’ products . The futures and roll returns are not necessarily investable.
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