While the world continues to be disappointed with the rate of recovery in the US, Europe and parts of Asia, the skies are clearing, and signs of improving US Payrolls, strong global auto sales figures and rising energy prices suggest that the economy is moving back towards normal.
In all markets, there are inside market forces and outside market forces. What outside forces are affecting physical commodity prices?
The recovery of the US economy continues but at a pace that is disappointing for a variety of markets.
The US economic pendulum has shifted again, with data flows generally remaining disappointing and little of any improvement in activity in the face of better weather.
Macroeconomic conditions are improving, and the Fed Chairman feels confident enough to weigh in with her own “irrational exuberance” moment with respect to equity valuations.
Without a dose of improved US economic news and a reversal in the Dollar’s uptrend, the outlook for physical commodities might remain negative.
The US economy has bulldogged its way to growth in February, despite adverse weather, ongoing energy sector layoffs, adverse foreign exchange rate action and periodic talk of rising US interest rates.
The events in the second half of 2014 will do more to stimulate the global economy than all the central bank and governmental efforts combined.
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.