Biggest commodities drop since September, reflation trades unwound Biggest commodities drop since September, reflation trades unwound Biggest commodities drop since September, reflation trades unwound

Biggest commodities drop since September, reflation trades unwound

Equities 7 minutes to read
Picture of Peter Garnry
Peter Garnry

Chief Investment Strategist

Summary:  The commodity sector is under pressure with our commodity sector basket falling 2.7% yesterday in the biggest decline since September 2020. Transportation stocks are also under pressure and Caterpillar shares are down 14% in the past nine trading session, the biggest decline since March 2020. We take a look at the inflation trade and what could get back on track.

Our commodity sector basket dropped 2.7% yesterday in the biggest single-day drop since September 2020 when the value and reflation trade was still under pressure. The commodity sector is now at the lowest levels in more than six weeks underscoring that consensus is bolstering around the transitory narrative on inflation and growth with the world back to normal by mid-2022. Rising commodity prices have negatively impacted growth in China and reduced profitability in its corporate sector which has forced China to strengthen its currency to alleviate some of the pressures. The Chinese government has recently begun releasing strategic commodity reserves in key industrial metals to take some steam out of the commodity market. This can have a short-term effect, but the long-term pressures will likely remain due to the green transformation in the developed world and excess fiscal stimulus in the US.

5-year weekly chart on Saxo's Commodity Sector basket

Source: Bloomberg

The current reflation reboot is an interesting change in markets because either most market participants and central banks are right and we will return to normalcy within a year, or else this is one of the biggest traps in recent history. We are still leaning towards that inflation will be stickier than expected based on excessive fiscal stimulus for longer driven by Covid-19 response and the green transformation. The chart below shows the current fiscal stimulus change since origin between the pandemic and the Great Financial Crisis. We clearly see the big difference in policy response and the question is whether policy makers overlearned the 2008 crisis.

Even if things normalize and let’s say the fiscal stimulus change this time reaches same level as post-2008 after 20, that is a 6%-pts change from origin, months things are quite different. The comparison is that of -9.2% fiscal deficit by May 2010 compared to -11.1% fiscal deficit by September 2021, but even more importantly these almost identical levels of stimulus will happen with different labour markets. In May 2010, the total unemployment rate in the US stood at 16.7% whereas the current total unemployment rate is 10.2% and declining rapidly. In other words, the risk of excessive stimulus and the economy running too hot is still a clear macro risk and key catalyst for future inflation.


In today’s podcast we covered the breakdown of the transportation sector in US equities and also highlighted Caterpillar’s recent decline with the stock price down 14.2% over just 9 trading sessions, the steepest sell-off since March 2020 during the peak of the pandemic panic. Caterpillar is valued around the average for global equities at 5% free cash flow yield, so it cannot be valuation concerns that have driven down its share price. Since the reflation trade is losing momentum Caterpillar’s move down must be related to the market pricing in lower growth in accordance with the transitory and ‘back-to-normal’ scenario. On the other, this scenario will keep rates lower for longer and extent the demand in the construction sector, so this week has seen many mixed and contractionary signals.

Source: Saxo Group

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.