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.
Large Grain Supply May Not Be Enough!
Several years ago, the amount of food consumed inside the home was surpassed by what was consumed outside of the home.
Sentiment Was Overly Negative Going into the 2016 Equity Market Lows
Last week we suggested that the “long dark shadow” of deflation was starting to fade, and given the impressive rally off the February low through the end of the month, we would suggest that sentiment was overly negative going into the 2016 equity market lows, as the global swoon was mostly about disappointing forward momentum and not some major, difficult-to-solve obstacle.
Is the Long, Dark Shadow of Deflation Starting to Fade?
Perhaps the moderation is the result of many markets having already priced-in anemic growth, oversupply and little threat to supply.