Seeing silver, sugar and soybeans forge strong price gains has historically hinted at inflation, but that type of forecast seems foolhardy in the current environment.
Forward Progress in the US Economy Has Disappointed
The “talking heads” and “talking fund managers” are suggesting that the rally in commodities is done, unjustified and poised to be reversed.
Increased Odds of Growth in the US and Abroad
Just when it appeared that the commodity markets were overbought and poised to correct, the US Fed was found to be on-hold “to at least June.”
Prospects of a June Fed Rate Hike?
We think that commodity markets were short-term and perhaps even intermediately overbought going into their recent highs.
Growth in the Rest of the World Showing Signs of Improvement
Just when it appeared that commodities were settling back on a deflationary track, leadership surfaced in fresh buying interest in gold, silver, platinum, soybeans, corn and crude oil.
Mid-March Crisis
The recent retrenchment in bean oil, crude oil, sugar, corn, equities, cattle, gold, platinum, palladium and copper as well as significant rallies in Treasuries and the Japanese yen mostly started around March 14th, and some have labeled the period since mid-March as a “crisis.”
Global Markets May Have a Brighter Outlook
An improvement in US and European manufacturing activity as well as news that the “official” Chinese PMI number climbed back into expansion territory for the first time in 8 months bodes well for a more sustainable global recovery effort.
The Progression Away From Deflation Has Begun
Several weeks ago we spoke of a brightening of economic skies, but in this publication, we have to note some short-term vulnerability potential in markets that are overbought and/or markets that might be overly sensitive to a shift by the Fed back toward a more hawkish stance at upcoming FOMC meetings.
Commodities Should See Fewer Negative Outside Influences
After a slight brightening of the skies, the US Fed has stepped in and stoked recovery efforts further with a reduction in the number of anticipated 2016 rate hikes and a nod to the importance of international headwinds in their future policy decisions.
The Pace of Improvement Remains Difficult to Detect
The brightening of the economic skies continues, but the pace of improvement remains difficult to detect.