Daily Insight What next for commodities?
Group Economics Macro & Financial Markets Research Hans van Cleef, & Nick Kounis
+31 20 343 5618
21 August 2015
Commodity prices have declined sharply on over-supply and worries about China’s outlook Price correction looks exaggerated and stronger growth should set scene for a recovery over time Commodity prices will limit headline inflation in coming months, but Fed still likely to hike
Brent oil tests January lows on global glut concerns
near term downside risk due to the extremely negative market
Brent oil prices dropped towards the January lows after the
sentiment, we expect a technical upward correction as soon as
release of the US inventory data. US crude inventories rose,
investors realise that they have pushed commodity prices
adding to investor worries about the global oil glut. WTI has
down too far, too fast.
already traded at a 2015 low for several days. The worries came on top of the already negative market sentiment
We think that oil prices could regain some of their losses as
regarding commodities in general, including oil. Many
soon as the markets start to anticipate a better balance
commodities are confronted with oversupply. This can be
between supply and demand. However, this will most likely not
partly the result of many years with high prices, which gave an
be seen before US crude production is finally significantly hit
extra impulse to production. But another part is the result of
by the low oil prices. We therefore expect oil prices to remain
disappointing demand, and in the case of China, increased
low for longer (Brent average USD 60/bbl and WTI USD 55/bbl
worries regarding future demand. This combination has led to
in 2015). Cyclical base metal prices - like copper, zinc and
heavy pressure on cyclical commodities.
nickel - should be able to recover as soon as future Chinese demand worries ease. Our base scenario remains for a soft
Commodity price performance ytd since start of 2015 In % Cocoa Silver Corn Gold Natural Gas (HH) Natural Gas (TTF) Soybean CRB spot Wheat Oil (Brent) Aluminium Platinum Zinc Coffee Iron ore Sugar Copper Coking coal Oil (WTI) Global steel (hrc) Palladium Nickel
landing in the Chinese economy, as stimulus feeds through to support economic growth.
7.7% -3.3% -4.7% -4.9% -8.7% -9.8% -12.7% -15.7% -15.9% -16.1% -16.2% -17.7% -17.8% -20.4% -20.8% -21.0% -21.6% -22.7% -23.8% -24.9% -25.8% -31.1%
-40%
-30%
-20%
-10%
Commodity price declines point to a lower outlook for headline inflation, but Fed will still likely hike Lower commodity prices – especially oil – point to a lower profile for headline consumer price inflation in the coming months around the world. Annual inflation will still likely bounce at around the turn of next year, but the rise will be more muted than previously expected. Global manufactured goods prices are also weak, where as in the US, dollar strength is also currently capping goods price inflation. Having said that, central bankers generally tend to see the 0%
10%
Source: Thomson Reuters, ABN AMRO Group Economics
impact of commodity prices as being relatively transitory. They focus on the inflation outlook in the medium term, which tends to be driven by the economic outlook. Hence, the Federal
Normalisation of sentiment should be positive for
Reserve’s focus on continued above-trend economic growth
commodities
and strong job growth as being the main indicators necessary
We think that the downward correction in commodity prices
for it to start to raise interest rates soon. Although measures of
has gone too far. Oil prices below USD 40/barrel are not
long-run inflation expectations derived from Treasury securities
sustainable as this would lead to a further sharp cutback in
have fallen, this seems mainly due to oil prices. We still expect
investments. Also the worries regarding future Chinese
a September Fed rate hike. The subsequent rate cycle will be
demand for base metals are over exaggerated. Despite some
very slow though.
2
What next for commodities? – 21 August 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1237
-0.0445
1.1522
123.43
0.0243
-0.7079
3.0473
AUD/USD
0.7328
-0.1227
-0.6912
-10.3609
USD/CHF
0.9592
0.0626
-1.6911
-3.5301
NZD/USD
0.6623
-0.1206
1.1608
-15.0571
GBP/USD
1.5687
-0.0191
0.2877
0.7062
USD/SGD
1.4043
0.1212
-0.1848
5.9449
USD/CAD
Bond markets
1.3084
Close
-0.0229
Change 1 day
-0.0306
Change 5 days
-7.1169
12.5893
Change YTD
2-year German Govt Bond yield
-0.2560
0.0010
0.0220
-0.1580
10-year German Govt Bond yield
0.5820
-0.0370
-0.0480
0.0410
Yield curve Germany
0.8380
-0.0380
-0.0700
0.1990
2-year US Treasury Bond yield
0.6574
0.0041
-0.0644
-0.0071
10-year US Treasury Bond yield
2.0696
0.0017
-0.1281
-0.1016
Yield curve US
1.4122
-0.0024
-0.0637
-0.0945
US 2-year sw ap rates
0.8876
-0.0108
-0.0692
-0.0067
US 10-year sw ap rates
2.1505
-0.0180
-0.1005
-0.1356
US sw ap curve
1.2629
-0.0072
-0.0313
-0.1289
EU 2-year sw ap rates
0.0800
-0.0025
-0.0020
-0.0950
EU 10-year sw ap rates
0.9229
-0.0031
-0.0871
0.1109
EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.8429
-0.0006
-0.0851
0.2059
-0.0300
-0.0010
-0.0060
-0.1080
0.3334
0.0005
0.0241
0.0778
JPMorgan EMBI Plus Sovereign S
440.8200
7.3400
23.5600
53.3800
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
19,705
-1.64
-3.97
Hang Seng Index
22,757
-1.77
-5.25
-3.59
Hang Seng China Enterprises Index
10,403
-2.25
-6.12
-13.20
12.92
Australian Stock Exchange S&P/ASX 200 Index
5,236
-1.00
-2.26
-3.24
Singapore Straits Times Index
3,010
-1.03
-2.65
-10.56
Euro Stoxx 50 Index
3,353
-2.23
-4.63
6.58
S&P 500 Index
2,036
-2.11
-2.29
-1.13
MSCI World Daily Total Return Gross USD
765
-1.62
-2.63
-0.35
AEX Index
459
-2.15
-3.74
8.17
19
25.51
41.88
-0.31
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade
Close
Change 1 day % Change 5 days %Change YTD%
195
0.47
-1.60
1,154
0.16
3.50
-15.34 -2.60
41
-0.65
-3.41
-22.94
46
-0.64
-5.53
-19.20
5,119
2.48
-1.27
-18.75
506
-0.10
-0.15
-14.24
3
What next for commodities? – 21 August 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Monday Monday Monday Monday
17/08/2015 17/08/2015 17/08/2015 17/08/2015
01:50:00 14:30:00 16:00:00 15:45:00
JP US US EC
GDP - % qoq Empire State PMI - Manuf. general business conditions - index NAHB home builders' confidence index ECB announces weekly QE details
2Q P Aug Aug
-0.4 -14.9 61.0
-0.6 4.7 61.0
62.0
Tuesday Tuesday Tuesday
18/08/2015 18/08/2015 18/08/2015
10:30:00 13:00:00 14:30:00
GB TR US
CPI - % yoy Repo rate - % Housing starts - % mom
Jul Aug 18 Jul
0.1 7.5 0.2
0.0 7.7 0.4
Wednesday Wednesday Wednesday Wednesday Wednesday
19/08/2015 19/08/2015 19/08/2015 19/08/2015 19/08/2015
01:50:00 14:30:00 14:30:00 14:30:00 14:30:00
JP US US US US
Merchandise trade exports - % yoy Inflation excl food and energy - % mom Inflation excl food and energy - % yoy Inflation (CPI) - % mom Inflation (CPI) - % yoy
Jul Jul Jul Jul Jul
7.6 0.1 1.8 0.1 0.2
5.7 0.2 1.8 0.1 0.2
Thursday Thursday Thursday Thursday Thursday
20/08/2015 20/08/2015 20/08/2015 20/08/2015 20/08/2015
09:30:00 09:30:00 10:30:00 16:00:00 16:00:00
NL NL GB US US
Consumer confidence - index Unemployment rate Retail sales - % mom Existing home sales - % mom Philadelphia Fed - business confidence - index
Aug Jul Jul Jul Aug
6 6.8 0.4 2.0 8.3
0.6 -1.4 6.5
Friday Friday Friday Friday
21/08/2015 21/08/2016 21/08/2017 21/08/2017
15:45:00 10:00:00 10:00:00 10:00:00
US EC EC EC
Markit Manufacturing PMI Manufacturing PMI Services PMI Composite PMI
Aug P Aug P Aug P Aug P
53.8 52.4 54.0 53.9
0.0
0.2 1.8 0.1 0.2 5 6.9
55.0 53.0 54.5 54.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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