Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
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Yields keeping a lid on commodities; Oil maxed out
Ole Hansen
Head of Commodity Strategy
Summary: The month-long commodity rally continues to be challenged by elevated bond market volatility driving a renewed rise in US bond yields and a stronger dollar. Pockets of strength seen in carbon emissions, platinum and gasoline while iron scraped the bottom as China stepped up its pollution focus. Gold sang to the tune of US real yields and crude oil showed signs of hitting a temporary top while waiting for a sustained demand pickup. Grain markets kept one eye on US and South American weather developments and a renewed outbreak of African swine fewer in China.
The month-long commodity rally continues to be challenged by elevated bond market volatility driving a renewed rise in US bond yields which in turn is causing risk aversity and a stronger dollar. These developments left the Bloomberg Commodity Index near unchanged and close to a 2-1/2-year high, and combined with a record long position held by funds, the sector is currently, despite strong underlying fundamentals, still at risk of entering a period of consolidation.
Metals of most colors saw their price action ebb and flow in line with dollar and bond yield developments. US stimulus supported copper despite signs of easing tightness, especially in the Chinese market where exchange-monitored stock levels have started their seasonal increase, albeit from a price supportive multi-year low. Platinum rose after report from the World Platinum Investment Council said 2020 produced the largest deficit on record, with third consecutive annual deficit expected in 2021.
Iron ore suffered a weekly loss after the Chinese Government initiated a pollution crackdown on steel mills in the steelmaking hub of Tangshan, one of most polluted cities in China. For steel, the government has already pledged to rein in capacity as the country embarks on its planned journey to carbon neutrality by 2060.
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