What have we learned in the month of October? We have learned once again that free markets work and that market forces, given time, will provide a cure.
In the wake of the capitulation event a couple of weeks ago, global sentiment has continued to improve.
The recent market action appears to have been a capitulation event that has exaggerated global slowing fears.
Just when it seemed like global economic sentiment was showing signs of improving (or at least stop getting worse), it was dealt a blow with new fears of a return to recession in the Euro zone.
Negative headline news has reached a fever pitch, seasonal commodity price pressure remains in place, adverse Dollar action dominates, and perhaps most importantly, the international economic outlook continues to deteriorate.
The spec net long in physical commodities continues to decline, fears of global slowing (particularly from Europe and China) are front and center, and the ever-strong US Dollar is adding into the bear case for commodities.
While it is premature to suggest that a major bottoming of commodity prices is imminent, a combination of bearish geopolitical pressures, distinctly adverse currency market action, slack physical demand and rising physical supplies could result in a crescendo of selling and perhaps an intermediate bottoming in several markets.
In retrospect, the sharp slide in physical commodity prices was well deserved, what with global macroeconomic sentiment eroding in the wake of signs of lost momentum in the US recovery, threats of additional sanctions against Russia, and perhaps most importantly, a soaring US Dollar.
Global economic psychology has improved, partly because of easing tensions in the Black Sea region but also because of generally positive US scheduled data flows.
The action in equities over the last month has been impressive, but it is even more impressive when one considers that the gains were forged in the wake of generally disappointing global economic news flow and a persistent escalation of tensions between Russia and Ukraine.