Global Market Quick Take: Europe
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Q3-23 Outlook: AI - The good, the bad, and the bubble
Update: Gold in search of fresh momentum
Update: Crude oil in buoyant mood
The commodity sector traded higher for a second week, thereby setting the sector on track for a second monthly gain and the best run in more than a year. In our recently published Q3-23 Outlook we asked whether the commodity sector was bottoming out following a year-long decline. While some potential negative drivers still exist, we are nevertheless seeing emerging signs across the different sectors pointing to support.
The Bloomberg Commodity Total Return index trades up 3.7% on the month, thereby reducing the year-to-date loss to just 4.4%, with an all-sector rally being led by industrial metals and energy. On an individual level silver, crude oil, fuel products, platinum and copper also stand out.
Apart from Chinese policymakers repeating calls to support the world’s biggest commodity-consuming economy, the key driver this past week was undoubtedly the positive boost to risk sentiment that followed lower than expected US inflation and PPI prints for June. The data helped send the dollar and Treasury yields sharply lower after raising optimism that the US rate-hike cycle may be nearing an end, thereby reducing the risk of a recession and its potential negative impact on demand.
However, with the dollar currently down around 2.5% on the month compared with the gain in commodities, it not only highlights the important support the weaker dollar has provided, but also some short-term vulnerability should traders decide to book some profit on their dollar short positions. Not least against the euro which has reached a 16-month high above €1.12 against the dollar and, equally important, an all-time high in trade-weighted terms (nominal effective terms according to ECB measures).