Head of Commodity Strategy
Summary: 2018 began on an optimistic note as synchronised global growth pushed asset prices higher. It is ending with a synchronous sell-off. In between the two circumstances, there have been many surprising moves in the commodities space, with carbon credits, soybeans, and crude oil providing three of the biggest ones.
Looking back at 2018 from a perspective of finding and explaining the most dramatic or surprising commodity moves, we find several falling into those categories. A year that began with optimism driven by synchronised global growth ended instead with a synchronised sell-off. While the US trade war with China has created most of the headlines, some very important developments have been adding to the market’s unease. A 30-year bond market rally paused with the price of money rising in response to the US Federal Reserve’s continued efforts to normalise its interest rates. While the price of (dollar) money went up, the quantity began falling as central banks began moving towards quantitative tightening instead of easing.
Adding to this, we saw a challenge to demand and growth from the strong dollar. This development had an especially negative impact on those emerging market economies that are loaded up with dollar debt at a time of rising interest rates.
ICE EUA Carbon Emission contract (+202%)
While Bitcoin faltered, another market stood ready to take over as the high-flyer of the year. The EU Carbon Emission contract jumped by more than 200% in response to last year’s change in European regulations governing the availability of allowances. The idea behind the so-called Market Stability Reserve mechanism for carbon allowances from 2019 was to drive up the price of carbon emissions and thereby force a move away from coal to cleaner fuels such as wind, solar, hydro, and not least gas. A power plant using coal must buy twice the amount of allowances as plants burning natural gas.
A new fragmented world order can render some of today's infrastructure obselete, but it also calls for massive new investments across the globe, which requires a new set of strategic and tactical investment strategies.
Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
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