We expect the broad commodity rally that saw the Bloomberg Commodity Index rise by 10% during the last quarter will extend further into 2021. Driven by multiple tailwinds from tightening supply, a global market flushed with cash driving speculation across markets and increased demand for inflation hedges. Adding to this, the prospect for a weaker dollar, a vaccine-led recovery in global demand as well as emerging weather worries and the components for another commodity supercycle have started to emerge.
All of this during a time when the pandemic is still raging across many countries, especially in winter-hit regions across the northern hemisphere where the prospect for improvement - vaccine or not – is unlikely to occur until warmer weather arrives in March and April. While the rally may pause until the vaccine rollout gathers momentum, the market will have to rely on continued investment demand being strong enough to keep markets supported during the coming months when the negative impact of lockdowns and reduced mobility will be the greatest.
Investment demand was on clear display during the first full week of trading with the US stock market racing higher to reach a fresh record high, led by so-called ‘bubble stocks’ within technology and green stocks following the Democratic majority in US Congress. Bitcoin, another bubble candidate, surged past $40,000 as the alternative investment continues to become more mainstream with institutional demand on the rise.