On Thursday evening, I asked a very simple question:
Is it realistic to think that headlines like “entire metals complex falls off a fucking cliff,” can continue to exist in a vacuum?
Obviously, that was a reference to the metals mayhem that played out across markets yesterday and probably would have been the subject of more intense hand-wringing here in the US were it not for the fact that everyone’s eyes were squarely focused on Capitol Hill.
In what I can only describe as sign of the times and a truly depressing comment on the state of American democracy, the fact that Congress even got the new healthcare bill to a vote was considered a win.
Again, that shouldn’t have been Thursday’s story. Commodities should have been Thursday’s story and by extension, China should have been Thursday’s story.
Here with more on this is Bloomberg’s Mark Cudmore.
Via Bloomberg
Commodities have had yet another terrible week. This is a great example of how individual and largely unrelated micro triggers can combine to have severe macro consequences.
- The Bloomberg Commodity Index has fallen more than 8% from its February peak, to an 11-month low
- Our commodities team have been at pains to highlight the idiosyncratic factors driving the moves: oil is being hit by rising U.S. production, copper’s fall was triggered by the whopping LME stockpile-build, iron ore slumped on China concerns, agricultural commodities reversed after a U.S. storm caused less damage than originally feared, and gold is getting hit by the marginally more hawkish Fed and the perceived reduction in European political risk
- The point to note is that any of these assets has the potential to start rallying in isolation, which is a valid warning against trying to attribute a catch-all explanation for the commodities rout
- But even if the drivers are unique for each commodity, there are macro implications of this all occurring at once
- Global inflation will not sustainably rise while core input prices are tanking. That’s got a negative knock-on for financial markets sentiment. There’s genuine detrimental wealth effects, not to mention the message it’s sending about the state of global aggregate demand
- As a whole, the commodities selloff of the past two months is arguably the single largest macro factor shifting the view on how to play the months ahead. There are consequences for FX, rates, credit and equities markets
- Sometimes over-simplification of a complex issue can help you focus on the most important conclusions. That’s not to say there aren’t money-making opportunities for those who choose a more granular approach, but it doesn’t negate the validity of taking a macro view
Good insight, valuable reminder to keep focus on mkt. fundamentals
Mark Cudmore is a nice guy, but he missed this one by a mile. The trees here mean nothing, the forest is the key. Hell we all die from idiosyncratic events, but we all die – predicting this is the whitest of white swans. In 1980 we had the supply side revolution and now 37 years later we are loaded up with crap that no one wants. PERIOD – punto final.. Everyone of Mark’s idiosyncratic pieces of tree bark is an example of the same thing too many people producing stuff and not enough people to buy it. This will go on every day for decades until all those mines have been depleted, or the equivalent – or maybe there are more people to demand more of that raw material to bring prices up. It always happens – well not quite as commodity prices are in a slow decline for going-on 200 years. Watch for the next surprised headline – and believe it (sell) – as we are ion the downside of a multi-decade commodity super-cycle. Where are the macro thinkers to understand and make these trades?