Commodity markets are seeing nearly a perfect storm of bearish factors during the first 2 weeks of 2016.
Gold
The Commodity Markets Going Into 2016…
The 2015 market wrap-up suggests that broad-based deflationary sentiment has resulted from a “perfect storm” during the second half of the year.
Suspect a Bottoming in the World Economy
Economic prospects have improved over the last two weeks, as crude oil prices have shown signs of declining further, the Fed have minimally downplayed the prospect of a near-term rate hike, and perhaps most importantly, the ECB did “something” to help facilitate growth in the euro zone.
Classic Physical Commodities Under Spillover Pressure
The markets have seemingly become comfortable with a “one and done” rate hike from the Fed in December or sometime in early 2016.
Economic Data Has Softened in the US and China
Economic data has softened in the US and China over the last two weeks, yet some commodity funds have been seen bottom-picking.
Fed Not Confident in Pace of US Growth
With the Fed taking a pass on hiking rates in September, a reduction in their 2016 and 2017 growth forecasts, and only minimal dissension within their ranks against a steady policy stance, it appears that they are not confident enough in the pace of US growth to make a move at this time.
The Situation in China Will Not Have a Major Impact on the US Economy
The Chinese economy continues to be a weight around the neck of many commodities, but another weight, in the form of the US Fed, comes into focus for the coming week.
This Week’s Economic Outlook
Once again it appears that deflationary sentiment has reached an excess level with respect to physical commodity pricing.
A Recovery Unfolding at a Slower Than Expected Pace
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
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.