While the pace of the world economy remains disappointing to most commodity markets, a long list of central banks are exhibiting a commitment to a return to growth.
The US recovery has continued and Euro zone 3rd quarter growth has been slightly better than some expectations, but global economic sentiment is still not strong enough to temper bearish sentiment toward most commodity markets.
Tthe outlook for the global economy is quite positive…
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.