The Bloomberg Commodity Index has traded higher for a third week and during this time all three sectors have taken turns in the lead. In late August it was precious metals which surged in response to falling bond yields and reduced risk appetite. A thaw in the US China trade relations then helped trigger a strong week for crude oil and HG copper before the agriculture sector, following weeks of selling, moved higher last week.
Grains found support after a government report lowered the expected output from the coming harvest, together with renewed Chinese buying of soybeans. Precious metals continued to consolidate with gold finding support despite the recent 35 bp rise in US ten-year notes to 1.8%, a five-week high. Industrial metals maintained a bid amid optimism over signs of easing trade tensions. Crude oil markets meanwhile quickly reversed their recent gains with OPEC and Russia at a meeting in Abu Dhabi struggling to find a response to the current slowdown in demand, something that led the International Energy Agency to warn about a looming supply glut into 2020.
Ahead of the expected rate cut from the US FOMC next week the ECB gave the market an opportunity to test current market themes and assumptions. However, after delivering several measures to stimulate the economic activity, the subsequent market reaction took most by surprise. The euro rallied strongly, and bond yields jumped after it emerged that key core countries Germany, France and the Netherlands objected against the new QE. We conclude that the ECB has reached the end of the road in terms of what it can do with fiscal policies potentially taking over.