Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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FED and PBOC add momentum to commodities market rebound
Ole Hansen
Head of Commodity Strategy
Key points
- The commodities sector remains on track for a third consecutive weekly gain
- In the past week the sector has been supported by adverse weather, FOMC rate cut and now additional stimulus in China
- Demand dependent commodities from copper and iron ore to crude oil showing strong gains today
The commodities sector remains on track for a third consecutive weekly gain, and following an early September energy-led slump, the Bloomberg Commodity Total Return Index has recovered strongly to reach a two-month high, in the process recouping more than half of what it lost during the May to August correction. The index, which is replicated by several major ETF providers, as shown below, tracks a basket of 24 major commodity futures. It trades up 4.4% on the month (5.4% year-to-date), with all sectors showing a positive performance this month. This includes the energy sector, where losses in crude and fuel products following the early September slump are being offset by a +15% rally in natural gas, as a storm in the Gulf of Mexico threatens to disrupt production.
Besides sugar and coffee, both recording solid gains this month amid extreme weather conditions in Brazil and Vietnam fueling crop concerns, the commodities sector as a whole has been presented with two potential demand-supportive developments. Starting with last week’s bumper 50% rate cut from the Federal Reserve, the first of several, reducing the cost of holding and financing inventory, while also reducing the risk of a demand-damaging recession. This was followed up in China today, when the People’s Bank of China unveiled a broad package of monetary stimulus measures to revive the world’s second-largest economy and top consumer of raw materials. The move underscores mounting worries within the government over slowing growth and very muted consumer confidence.
The announcement has so far today triggered a strong response across growth-dependent commodities, from copper and iron ore to crude oil. Copper trades up 2.7% at USD 4.46 per pound, a two-month high, while iron ore futures in Singapore, the steelmaking stable, jumped 6.5% after the PBOC, as part of the support package, lowered borrowing costs on up to USD 5.3 trillion in mortgages. Crude trades back above key levels, which, once broken earlier this month, triggered a sharp sell-off that helped cause the first ever recorded short position held by hedge funds.
Recent commodity articles:
23 Sept 2024: COT: Dollar short reduced; Investment metals see strong demand ahead of FOMC
20 Sept 2024: Commodity weekly: Commodities boosted by bumper rate cut
20 Sept 2024 Video: Gold or silver, which metal will perform the best
17 Sept 2024: With gold reaching new heights, silver shows potential
16 Sept 2024: COT: Record short Brent and gas oil positions add upside risks to energy
11 Sept 2024: Crude slumps amid technical selling and recession fears
10 Sept 2024: US Election: will gold win in all scenarios
9 Sept 2024: COT: Crude long cut to 12-year low; Dollar short more than doubling
5 Sept 2024: Can gold overcome the 'September curse'?
4 Sept 2024: Wheat rises on European crop worries
3 Sept 2024: Chinese economic woes drag down crude oil and copper
2 Sept 2024: COT: Commodities see broad demand as the USD slumps to a net short
30 Aug 2024: Commodities sector eyes fourth weekly gain amid softer dollar and Fed expectations
27 Aug 2024: Month-long sugar slide pauses amid concerns of Brazil's supply
27 Aug 2024: Libya supply disruptions propel crude prices higher
26 Aug 2024: COT: Funds boost metals investment as dollar long positions halve amid weakness
23 Aug 2024: Commodities Weekly: Metal strength counterbalancing energy and grains
22 Aug 2024: Persistent supply contraints keep cocoa prices elevated
21 Aug 2024: Weak demand focus steers crude towards key support
19 Aug 2024: Resilient gold bulls drive price to fresh record above USD 2500
19 Aug 2024: COT Buyers return to crude as gold stays strong; Historic yen buying
16 Aug 2024: Commodities weekly: Gold strong as China weakness drags on other markets
9 Aug 2024: Commodities weekly: Calm returns to markets, including raw materials
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