The Bloomberg Commodity Index has seen its year-to-date gains disappear following four weeks of heavy selling. The broad-based index, which tracks 22 major commodities evenly split between energy, metals and agriculture, has been hurt by a stronger dollar and trade war angst as well as expectations that Opec+ will increase production in order to cap crude oil’s upside.
The current robustness of the US economy compared with the rest of the world has led to the current divergence in monetary policy between the Federal Reserve and other major central banks around the world. As a result, the global economy, especially emerging market economies carrying a heavy debt load, has seen a more challenging environment as the dollar strengthens and liquidity becomes tighter.
Adding to this, the current risk of trade protectionism means questions are being raised about the impact on growth and subsequent demand going forward. This is potentially one of the biggest challenges commodities will face over the coming months.
Industrial metals have been caught at the center of these concerns, not least following a tough couple of weeks for China where weakness in key economic data and trade concerns helped send the Chinese CSI 300 index down to a one-year low. Zinc was hardest hit as it slumped to a ten-month low while HG copper once again looked for support at the bottom of the range it has stayed within for the past nine months.