Even futures contracts for commodities are not safe from the inflation fears that are gripping the world markets. Crude oil plunged 7%, coffee had its biggest loss in two months, while maize and copper also tumbled.
Fresh concerns that the Federal Reserve will accelerate inflation have led to a sold in most risk assets Thursday. U.S. stocks fell from records and treasury yields jumped. These movements spilled over into commodities, with a physical demand strongly linked to global growth expectations.
Yet it was a bit of a paradox for commodities. Sometimes the markets can benefit from an inflationary environment, as investors consider the commodities to be a good place to go. yield. But the inflation equation just needs to be right: too much, especially when accompanied by concerns about economic growth and a higher dollar, and the inflation boost is rapidly changing to a low point amid pending demand expectations.
Commodities have a start of the year with a rising boost that rose by more than 30% until Wednesday. Maize, soybeans and copper reach multi-year heights and timber prices soared. Bulls gave such an order that some dealers got ready for a new superbike of long-term profits.
The reason why commodities keep rising? They are a home to deliver
This enthusiasm came to a halt this week, as the slow explosion of the vaccine raises concerns about how long it will take before energy, metals and grains’ consumption return to pre-pandemic levels. This is exacerbated by the dollar rises, which makes the price of green prices less attractive than a value store.
“Treasury yields and the dollar are responding to the Fed, and this is currently having a negative impact on commodities,” Arlan Suderman, chief commodity economist at StoneX, said in an email.
The Bloomberg Commodity Spot Index fell 2.4%, the biggest drop since mid-September.
West Texas Intermediate crude futures declined for a fifth session, the longest stretch of daily losses in more than a year. Global oil demand will only return to pre-pandemic levels again in 2023, and growth will then be curbed amid new work habits and a shift in fossil fuels, the International Energy Agency said this week.
Grain prices also fell. There are signs of improved growth conditions for some crop producers. Favorable rains for soybeans in Argentina weighed on the market, while favorable weather in the US, Russia and Ukraine put wheat prices under pressure.
Meanwhile, the profit for treasury yields has hurt the demand for alternative assets such as gold and silver, which bear no interest.