Recently, commodity prices have generally fallen. From energy, metals, building materials to agricultural products, commodity prices have fallen one after another, rekindling the hope of peaking inflation. If inflation really peaks and falls, then the fed will be able to breathe a sigh of relief, which means that US stocks may usher in a turnaround in the second half of the year.
The price of natural gas, which once surged 60%, recorded a 3.9% decline at the end of this quarter; the cumulative decline of 7.6% in U.S. WTI crude oil in June also brought the international crude oil, which was once as high as $120, back to around $106 ; prices of wheat, corn and soybeans The price of cotton has fallen by more than a third since the beginning of May; the benchmark prices of construction materials copper and lumber have fallen by 22% and 31% respectively, and a basket of industrial metals on the London Metal Exchange is the most since the 2008 financial crisis. Bad quarterly performance.
Although the prices of many raw materials are still at high levels, with the decline of commodities, US inflation has begun to show signs of peaking, and the important US inflation indicators that determine the Fed’s actions continue to fall . Louis Navellier, chief investment officer at fund management firm Navellier & Associates, said:
The moderation in commodity prices is clear evidence that inflation is cooling.
At the same time, the market is also looking forward to the turn of the Fed’s tightening policy. The interest rate swap contract linked to the Fed’s meeting date shows that traders expect interest rates to be close to 3.11% by December next year, down from the 3.62% expected to peak in March. more than 50 basis points. As described in the Wall Street News VIP article :
Logically speaking, the decline in commodities indicates the decline of the economy and the easing of inflationary pressures, thereby releasing the pressure on the Fed to tighten. Therefore, U.S. stocks benefit from the improvement in liquidity and have a certain rebound momentum.
It is worth mentioning that the minutes of the Fed’s June meeting to be released on Wednesday may reveal some clues about the pace of interest rate hikes for the rest of the year, as the Fed is trying to reduce demand to curb inflation at the highest level since the early 1980s. At the same time, US stocks recorded their worst first half performance in decades, and many investors chose the energy sector as a safe haven.
Traders and analysts said the fall in commodity prices was partly driven by investors pulling back after piling into energy, metals and agricultural markets as a hedge against inflation. About $15 billion was withdrawn from commodity futures markets in the week ended June 24, the fourth straight week of outflows, said JPMorgan commodities strategist Tracey Allen . The total amount of funds withdrawn from commodity markets this year reached about $125 billion, a record that even surpassed the outflows from the 2020 economic lockdown.
Although supply shocks are still driving prices, these pressures have gradually eased. The explosion in the U.S. Freeport, the ebb of the U.S. housing market boom, and the improvement of the climate in major grain producing areas have also eased the heat of commodities:
An earlier Wall Street News article mentioned that the U.S. Energy Information Administration (EIA) released a report last week saying that in the week ended June 24, U.S. oil production averaged 12.1 million barrels per day, the highest level since April 2020. highest level.
U.S. domestic gas supplies eased after an explosion at a Texas LNG port stranded overseas supplies , sending natural gas futures plummeting.
Better weather in the United States, Europe and Australia has also provided favorable conditions for food growth, helping to fill the Ukrainian food supply gap, with prices such as wheat and oilseeds now falling back to pre-conflict levels.
Also, a cooling U.S. housing market eased demand for raw materials as mortgage rates tracked U.S. policy rates higher.
Despite the pullback in commodities, some investors still see commodities as a safe bet in a sluggish year for stocks and bonds. Inventories around the world remain low, JPMorgan analysts said, recommending buying agricultural futures, predicting a 10% return on a basket of commodities by the end of the summer and 5% by the end of the year.
The key question is that the slump in commodities will cool inflation, and the Fed seems to be able to tighten monetary policy without sharply tightening monetary policy. Is it just around the corner for US stocks to get out of the bear market? Wall Street News VIP member article “Why can’t the big slump “save” US stocks? ” will bring new revelation.