This is what is so interesting at this point in proceedings. Many large participants are forecasting a continuation of the cyclical commodity bear and effectively the ending of the commodity super cycle.
Fundamental demand and supply wise they could be correct but demand and supply do not drive price moves of commodity instruments any more. Monetary issues such as credit and currency drive their prices.
Monetary wise equities are starting to stretch into an over valuation as earnings disappoint, credit is becoming bountiful as excess reserves accumulate from multiple western qe programs. The search for yield goes to extremes as junk spreads to US ten year rates steepen, (the 10yr T bond falling back down to 2.5% today but junk outpacing her). Asset prices rising and ever stretching the multiple to median household income. Its a bubble certainly. Driven by zero interest rates, fiscal deficits, fiscal tax policy and unlimited qe. The monetary excess typically finds its way into the commodity asset classes at the tail end of over stretch valuations. We appear to be moving into this end game phase would be my comment. The US$ index remains the lead and is breaking key levels as commented last week which requires giant shifts in allocations by large participants who cannot ignore these moves, if they continue.
CS are taking the other side here for a continuation. They are probably in the majority still at present though momentum, and price, is starting to move to the other side. Its a fascinating market event and must be watched, for obvious reasons.
Report here:
And I just received a copy of the BarCap china commodities report. (Thank you, you know who you are).
We also see Barcap coming out for the bear continuation here, again driven by the fundamentals, particularly from China and Asia who are the main drivers of demand for the commodity asset class.
As we look at the well research fundamental case outlined in both reports we must recall that trading always beats fundamental issues, in the near term.
And, furthermore, monetary issues (in our fiat money world) often override fundamentals, for extended time periods.
We are clearly reaching a pain threshold area for participants!
Here the report:
All the best
Rich