A cura di Walter Snyder, Swiss Financial Consulting
There are many reasons why commodity prices change. Supply and demand are two obvious ones, and a slowing global economy logically would entail lower commodity prices. The US dollar is another cause of price movement in the markets, and recent dollar strength in Forex markets has resulted in a fall in the dollar price of commodities. If the US dollar appreciates against a local currency, then the country`s products will cost less in dollars. In the present situation the combination of weaker demand because of a slowing global economy and the resurgent US dollar has brought about lower commodity prices generally.
Oil is the most important global commodity and is subject to all sorts factors that can influence the price, among which politics figures prominently. The US sanctions on Iran will be important in the short term as well as lower costs for US fracking. Pipeline constraints in the US will also influence production. Assuming that Saudi Arabia compensates for any supply deficits due to the Iranian problem, the difficulties facing Venezuela and the turbulent situation in Libya, then it is likely that the oil price will continue to hover around the US$ 70 mark. The prices of most other commodities have recently fallen.
Another factor that is difficult to evaluate precisely is how the current trade war between the US and the rest of the world is going to develop. The imposition of tariffs on products will mean higher prices for consumers and companies. This should logically cause less demand for the products and would thus aggravate the current global economic slowdown.
Given that the US dollar is still the major global reserve currency and the recent upward movement of the greenback on price charts, the results of Trumpian tariffs and Fed rate hikes should be viewed in light of the large budget deficit foreseen for 2018 along with the demands of the Treasury for marketing US debt. This has been discussed in previous Newsletters. The point here is that a credit crunch is on the way. If one adds to this the opinion of many market observers that a recession is probable in H1 2019 since the current recovery will soon be the longest one historically, it is likely that market turbulence will be forthcoming. Traders may face contango (future price higher than expected spot price) as a crisis develops and then gains momentum. If, at a certain point, the dollar weakens significantly, speculators may suffer heavy losses.