The benchmark, CRB Commodity Index, ended the week 1,3% higher.
Energy had another extraordinary week, while refined oil products seem to outperform the basis crude oil product. Natgas also recovered quite strongly. Metals were weak and continued their downtrend. Grains and Softs were mixed and driven by their own market dynamics. Crypto was down again, driven by tighter financial conditions, a trend that should continue as well.
Here is my latest playbook:
Realyields at the brink of turning positive again
10Y Realyields ended the week at -0,03% and could soon turn positive again for the first time since January 2020. Here you can see the correlation between Realyields and the CRB commodity index. We can say that there isn’t a significant correlation between both. What we can say is that since 2013 (and in general since post-GFC) commodities performed not so well when the 10Y Realyield was above 0.
Meanwhile, Credit Suisse finally confirmed my view of a more fragile gold price in the near future. Higher Realyields are just a bad fundamental environment for gold.
How bad is the Chines economy? Very bad!
On Saturday the latest Chinese PMI was released. And it looks really bad. Keep in mind that a value above 50 indicates an economy that is still growing. the latest numbers were even worse than most analysts expected.
- Manufacturing PMI dropped from 49,5 to 47,4
- Non-Manufacturing PMI (dominated by services) dropped from 48,4 to 41,9
The reasons for the sharp drop in economic activity can clearly be explained by the strict covid lockdowns throughout the country. Workers and businesses can’t work at full capacity which can be seen as well in the shipping data. Port activity is pretty much down and the number of goods shipped from China to the US is at new lows. This could lead to renewed shortages throughout the world once inventories are depleted.
Elsewhere In The Macro World
What does a strong USD historically mean for commodity prices?
Historically there is, most of the time, a negative correlation between both. that means whenever the Follar was strong, commodities tend to underperform and vice versa. But there were exceptions as well. Look at the time from 1999 till the end of 2000. The Dollar was strong and so was the performance of commodities. We’re seeing kind of the same development since June 2021.
This week look out for:
- Manufacturing PMI data on Monday
- FOMC meeting on Wednesday
- Job market report on Friday
BTW If you would like to see more commodity and macro content like this - consider following me on Twitter @lukaskuemmerle
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