Commodities at Their Highest Since 2018 due to Greater Optimism

RIO DE JANEIRO, BRAZIL – With 2020 on the horizon, commodities are at their highest level in over a year. From oil to copper, several commodities are recording annual gains.

The Bloomberg Commodity Spot Index climbed to its highest level since November 2018, driven by eased trade tensions, increased investor confidence, and a weakening dollar. The indicator has accumulated an 11 percent hike in 2019, on track for the best annual performance since 2016.

Commodities benefit from an end-of-year rally as the outlook for 2020 looks more promising than the prevailing conditions for much of this year.

The US-China first-stage agreement – due to be officially completed next month – depends on the Asian country increasing its purchases of agricultural products. In addition, the prospects for an agreement have helped encourage raw material users to replenish stocks, according to Oversea-Chinese Banking.

“Renewed optimism regarding the US-China trade agreement raises demand expectations,” said Howie Lee, an economist at the Singapore-based bank. “Reserves are low at the start of 2020 and with demand expected to pick up, many in the sector are short of inventory.”

Raw materials also leverage on the dollar’s weakness: the Bloomberg Dollar Spot index shows a low of 1.5 percent this month and is now at its lowest level since July. After three interest rate cuts this year, the US Federal Reserve is expected to keep rates stable throughout 2020.

Investor concerns over the possibility of a recession in the US – which hurt commodities earlier this year – have subsided. This month, bond manager Jeffrey Gundlach said the odds of a recession by the end of next year dropped to 35 percent. By September, he had predicted a 75 percent probability.

The outlook in China, the leading consumer of raw materials, is also more positive. The Asian country’s economic data improved in December for the first time in eight months, according to available preliminary indicators compiled by Bloomberg.

Several commodities are recording gains. Oil trading in New York rose to its highest level since September. Prices have accumulated a 36 percent rise this year with pressure from OPEC+ producers to limit supply.

In basic metals, copper exceeded US$6,000 per ton with global inventories declining as macroeconomic prospects improve. Wheat is traded at its highest level since 2018, while soybeans record the highest monthly increase since 2016.

Precious metals also accumulate gains, including traditional gold, which rises in December despite increased risk appetite and a record equity market appreciation. Gold has accumulated a 3.4 percent increase this month, trading at US$1,513 an ounce.

Source: Infomoney