WCU: Commodities rise as King Dollar stumbles

Global commodity prices staged a comeback this past week after the dollar failed to hold onto recent gains and rising stock markets helped to drive renewed risk appetite. The weaker dollar was led by the British pound which is headed for its best week since January following a week of Brexit drama in Parliament. The euro, meanwhile, managed to climb higher and back into the range that has prevailed for more than six months. 

Gains across commodities were broad-based and have occurred at a time when hedge funds have cut bets on rising prices across 24 major commodities to the lowest in three years. The is due in particular to an overwhelmingly negative view on agricultural commodities. The latest Commitment of Traders report covering speculative positions found hedge funds holding net-short positions in 12 out of 14 major agricultural commodities. At the opposite end, the crude oil-led energy sector remains the most-favoured sector, followed by metals.

The energy sector traded higher with WTI crude oil reaching a four-month high before running into profit taking ahead of key technical and psychological levels. Oil remains supported by tightening supply, both voluntary (from Saudi Arabia) and forced (from Iran and Venezuela). Worries about growth and future demand for crude oil remain just that at this stage, with the market instead responding to the continued tightening of supply. 

The livestock sector was the star performer with the price of lean hogs in Chicago surging by more than 10% in response to strong buying from China, the world’s largest consumer. An  outbreak of African swine fever has reduced China’s breeding herd by 15% during the past year, forcing the country to become an active importer.