Many commodity prices — oil, wheat, and copper — for example — are growing at the same time as worries of decline.
A weak economy will, in theory, reduce demand for certain items. For example, copper may be one of the falling commodities. In a recession, construction slows down — copper is used in wiring and plumbing — and other industries make less materials, such as electrical equipment, that also uses metal.
Experts, however, differ on how long these price declines last and how cool inflation is.
Said Edward Yardeni, president and chief investment strategist at Yardeni Research Baron’s Commodity prices provide a good read on feelings about the global economy.
“Right now they are definitely looking at weak demand for commodities, which is probably why global economic growth is slowing,” he said.
Helima Kraft, head of global commodity strategy at RBC Capital Markets, echoed Yardeni.
“The fear of a global recession has become front and center, obscuring the concerns of inflation,” he said.
For Kraft, the tenderness in commodity prices “shows a real concern for hard landing and what it means for demand.”
Ryan Grabinsky, an investment strategist at research firm Stratagas, expects demand for some metals to be “a little softer”, especially if building activity falls in China. “But at the end of the day, there is still demand for agricultural and energy goods” globally.
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Due to Russia’s war in Ukraine, Yardeni has a tough call.
“You don’t want to be critical of these things because commodity prices can be quite volatile,” he said. “Obviously, the geopolitical situation could lead to another surge, especially in food and energy prices that remain in flux.”
Still, Yardeni sees signs of a peak in oil prices. In a note on Friday, he noted that U.S. petroleum production has risen and higher prices are stalling — and blamed the rise of some prices on the war.
According to FactSet, Brent crude prices fell nearly 3.5% last week and fell 5.6% this month by the end of Friday.
Kraft, however, argues that energy supplies remain tight: “We still have a very thin spare capacity.”
Price declines are not across the board. The prospect of more actively trading wheat fell nearly 14% last week, but gold was much better, losing less than 1%.
Then there is the question of how much the falling commodity prices can bring down inflation.
“Financial markets are clearly encouraged to see commodity prices soar as a possible sign that real-time indicators of inflation outlook,” Yerdeni said.
Last week, shares rallied. But the S&P 500 fell 0.3% on Monday and is on its way to the first half, perhaps the worst in 50 years.
Craft, though, at least for now “it’s too early to tell because we don’t know the pullback period.”
This month’s summary of three major commodity categories:
According to FactSet, crude prices are soft, but still at an all-time high of 25%, as measured by the most actively traded futures.
The most active futures price for West Texas Intermediate or WTI fell approximately 5%, rising nearly 1% as of Monday afternoon. Brent crude oil is down at a similar rate.
Oil prices began to take off after Russia invaded Ukraine on 24 February. The biggest spike came in early March when the US banned Russian oil imports.
“I don’t expect that we’ll get back to 60-dollar oil anytime soon,” said Grabinski of Stratagas. “If prices do not rise from here, they are going to stabilize at least at these high altitudes.”
Comex Copper has lost about 12% since Friday for the month of June, potentially indicating an economic downturn.
Copper is “widely respected as the official authority in the business cycle because it continues to be very sensitive to global economic activity,” Yerdeni said.
Meanwhile, gold is trading on the side. Christopher Lowney, commodity strategist at RBC Capital Markets, said the range-bound trade reflects the rope of war.
On the one hand, some market watchers see gold as a safe haven when consumer prices skyrocket. Others feel that the precious metal, which has been pushed down by high interest rates, will inevitably go down, as the Federal Reserve suggests, to keep inflation under control from competition with high yielding investments.
“Most gold long-term macro relationships mean lower prices,” said Lowney, for example, “a rising rate environment [is] Usually bad for gold prices. ”
Wheat prices have come under increasing pressure recently, losing about 10% in the first three weeks of June, based on the prospect of more active trading. Ukraine is a major wheat producer and exporter; Growing the crop and selling it to other countries has been hampered by the war.
“We see grain prices going down, indicating that supply is going out of the way, other than through the Black Sea,” Yerdeni said.
Prices for live cattle that are trading more actively are stable, rising nearly 2% this month. But soybean is up 15%.
Lawrence C. Lawrence at [email protected] Write to Strauss