Commodity Monthly Monitor Defensives gain as ”Trumpflation” fades Your reference guide to commodity markets. Includes the latest outlook for each commodity sector and major developments for individual commodities.
Summary
• Agricultural prices under pressure from rising global output.
• Industrial metals saw their prices plummet as “Trumpflation” is fading away.
• Crude oil gains as market remains optimistic on an OPEC deal extension.
• The rise of geopolitical risks after US air strikes against Syria boost precious metals.
Globally, economic growth is becoming more broad-based, although growth rates remain well below their 40 year average in the developed world. US interest rates are beginning a steady rate hike path. Core inflationary pressures in the rest of the developed world are broadly rising, suggesting other central banks will have to follow the Federal Reserve or risk “falling behind the curve”. We question if interest rate normalisation can occur with so much government debt and such low productivity, and consequently see central banks having to strike a very fine balance between the twin dangers of inflation and recession. Increasing commodity prices have been a primary driver of inflation in recent years. The rise of populism and potential reversal of globalisation could further stoke inflationary pressures, but these trends are contingent on the delivery of political campaign promises, which look increasingly difficult. We see central bankers beginning to adopt a form of dovish monetary policy tightening, preferring to allow inflation to run above target. Sentiment towards commodities has just come off all-time highs, highlighting “peak bullishness”. In a broader context for commodities, given that prices are generally below the marginal cost of production, global growth continues to improve and we are seeing the early signs of supply side destruction, the fundamentals remain intact. It just maybe worth waiting for speculative positioning to cool down a little bit.
- Agricultural prices under pressure from rising global output. Soft commodities, sugar and cocoa, led the declines in the agricultural sector as favourable growing conditions in South America (for sugar) and Africa (for cocoa) prompted better crop harvest. The trend looks set to continue.
- Industrial metals saw their prices plummet as “Trumpflation” is fading away. Market participants are acknowledging the divergence between the US President’s promises during his campaign and what he is able to deliver. The Sentix Sentiment on US economy expectations started to fade recently. We however remain positive on the complex in the longer run on robust fundamentals and the enforcement of China environmental policy.
- Crude oil gains as market remains optimistic on an OPEC deal extension. Following strong compliance by individual member countries toward the deal to cut production, the market is optimistic that the deal will be extended. With poor compliance from non-member countries and surging US production, we are more pessimistic than the market.
- The rise of geopolitical risks after US air strikes against Syria boost precious metals. Gold and silver rebounded by 5% on average over the past month as investors poured money into safe haven assets. The tensions between the US and Russia, and the US and North Korea should continue to support gold prices in the near term
For followers of our CONTRARIAN MODEL we have the following signals this month.
BUY TICKER Soybean SOYB , ESOY (EUR Hedged) LSOB (2x) Soybean Oil SOYO, LSYO (2x)
SELL Gold SBUL, 3AUS (3x short) Silver SSIL, SI3S (3x short) Live Cattle SLCT
For more information contact:
ETF Securities Research team ETF Securities (UK) Limited T +44 (0) 207 448 4336 E info@etfsecurities.com
Important Information
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.
General
This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”). This communication is only targeted at qualified or professional investors. The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.