For most of 2017, equity market gains went hand-in-hand with expectations for improving commodity demand.
El Nino
Plenty of Supportive Forces for the US Economy
The steep drop in many commodity market sectors could be nearing an end as a little less volatility in financial markets, a more positive tilt to the Chinese and Indian economies and less safe-haven investing could leave the US economy in good shape going forward.
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.”
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.
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.
Current Sentiment in Favor of the Bear Camp
We continue to think that the current crisis lacks a pedigree, and industry leader Jamie Dimon (CEO of JP Morgan) would seem to concur, given that in the wake of stock declines he purchased shares of his company.
The US Economy is Slowly Progressing
Just as US scheduled data has continued to be mixed, the Fed had added confusion regarding their intentions on monetary policy. The general consensus is that the US economy is slowly progressing.
Fundamental Track in Favor of the Bear Camp
Just when it appeared that sentiment had reached a trough, the crude oil market dragged commodities down even further.
Additional Commodity Pressure in Anticipation of an Interest Rate Hike
In looking ahead to the coming week, we expect additional commodity pressure going into the FOMC meeting off of a stronger dollar in anticipation of an interest rate hike.