Posted by Walter
With the dollar's renewed strength and slower global demand, commodities are under pressure again.
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| Source: barchart |
The situation in Brazil is not helping as the weak Brazilian real encourages producers to dump commodities at lower prices (in dollar terms). And Brazil is one of the largest commodity exporters in the world (from corn to iron ore). Here is the Continuous Commodity Index (broad commodity index).
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| Source: barchart |
While the dollar rally and the weakness across the energy patch are pressuring commodities, other drivers exists as well. One specific commodity to watch closely is lumber. Here's May-2015 lumber futures contract. Is it an indication of slower US housing demand on higher rates ahead? Is the Canadian housing market in trouble?
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| Source: barchart |
And then we have the raw materials prices in China: steel rebar (used in construction) and iron ore (May-2015 contract). The rebar weakness tells us not to expect a housing recovery recovery in China this spring.
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| Source: barchart |
And China's recent growth downgrade is sending iron ore futures to multi-year lows (see story).
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| Source: barchart |
While the focus has been on crude oil, a number of non-energy commodities are also in trouble.
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| Source: CRB |
With the Fed's expected rate hike in 2015 and further dollar strength widely expected, the global deflationary environment is pressuring commodities across the board.
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