Commodity and raw material prices appear to have fallen sharply in the third week of June. The reasons? A gaining dollar and China's moves to ease inflation and the Federal Reserve's hawkish outlook may have prompted investors to close long positions and sell futures.
The price of copper, considered a barometer of economic sentiment, fell more than 7.5 percent in a week, the most since March 2020. Other base metals, such as nickel, fell nearly 6 percent. Gold fell nearly 5 percent this week, the most in more than a year, and palladium fell 11 percent, and that was just on Thursday.
Soybean futures are headed for a weekly drop of more than 11 percent, the biggest in seven years, and erase all gains from 2021. Corn and wheat are headed for weekly declines of 5 percent and 7 percent, respectively.
Why are we writing about this? Well, the last few months have pointed to a strong uptick in inflation due mainly to rising costs, and these have been lifted by, among other things, rising commodity prices. Now the pullback in commodity prices makes it increasingly likely that inflation in the May 2021 data will reach its cyclical peak.
As measured by its index, the US dollar reached 9-week highs this week, approaching 92 points on Friday. This came after the FOMC meeting, where US Federal Reserve policymakers signaled two interest rate hikes by the end of 2023. Fed chief Jerome Powell also noted that discussion on reducing bond purchases is likely to begin soon.
New claims for unemployment benefits in the US rose to 412k, the first increase in 7 weeks. Forecasts called for 359 thousand new claims. New forecasts from the U.S. central bank point to rising inflation this year, though price pressures are expected to slow in 2022.
While commodities and the U.S. dollar reacted sharply to the changes in the Fed's projections, the stock market remains unmoved. The Nasdaq 100 index even reached a new historic high yesterday, while the Dax or Euro Stoxx 50 remain at all-time highs. Stock market bulls are holding on to their positions as long as negative real interest rates are in place, and two or three rate hikes in two years do not seem to impress them at this point.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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