Commodities Rebound on Dollar Decline
A weakened U.S. dollar inspired a recent rebound in commodities. Speculation that this year’s global growth won’t be strong enough for the Federal Reserve to raise interest rates was another factor that fueled commodity growth. These stocks saw widespread increases with gains that ranged from gold to copper. A few weeks ago, oil reached new highs for 2016, but the commodity recently took a small dive as it dropped to below $32 a barrel.
A Fluctuating Market
Leading another day of growth in the Standard & Poor’s 500 Index were mining and industrial sector shares. Emerging market equities also saw a recovery to the tune of 3 percent while industrial metals rose as did platinum and gold. Retail earnings ended disappointingly since they brought down consumer shares. The pound also went the way of the U.S. dollar after Ian McCafferty, a member of the Bank of England’s Monetary Policy Committee and an economist, abandoned his request for higher rates.
A Weaker Dollar
The U.S. dollar’s strength was one of the market’s clearest assurances until the value dropped. Its recent fall brought about two particularly bad days of selling. Sketchy economic data that sparked worry over the American economy’s vulnerability coincided with precariousness abroad. When these main elements came together, they weakened the U.S. dollar. Currently, the fixed income market is under the impression that the Fed is unlikely to increase rates while central banks from Europe to Asia are likely to step in to relieve this year’s market turmoil.
When the U.S. dollar loses value, commodities become more affordable. This increases the interest level of those who invest in other currencies. The prediction that rates in the United States will remain steady for most of the year increases the price of precious metals since these commodities don’t provide the returns that other investments do through price gains.
Andrew Brenner, the chief of International Fixed Income for National Alliance Capital Markets, said, “The lower the dollar, the better it is for commodities, so we are seeing a little bounce back.” He went on to say, “The number of Fed rate raises has continued to be reduced by the marketplace, probably a little bit too much, but yes, the Fed will cut back. We will not do four interest rate raises this year.”
Commodities Come Back to Life
Industrial commodities, resource-centric currencies and commodity-related equities are rebounding. Aluminum was the first commodity to see gains, but the upturn has spread to copper, zinc and iron ore. Energy prices have been holding steady while crude oil continued a slow decline, but with oil, investors seem to be in the midst of a chain of heart.
Natural gas is another commodity that saw its stock rise with the weakened dollar. The commodity’s gains came to more than 14 percent, which is the best monthly performance that natural gas has enjoyed in more than two years.
When it comes to trades, commodities are known as cyclical stocks. This year, the market has already seen two separate miniature cycles. In January, commodities were down, but they recovered in February. After another dip, they rebounded again in March.
In the market, fundamentals are slow to change while sentiment tends to fluctuate more frequently. For instance, Chinese sentiment has experienced a sharp shift. In January, China steel and copper was at a major low point, but these commodities are now in positive territory.
Fundamentals are showing signs of improvement. What began as an exceptionally low base in December and January has turned into a demand recovery. One financial site pegged the situation as a “sub-trend to trend” shift. For instance, the demand for global steel has improved from about negative 6 percent to around negative 2 percent. Simultaneously, confidence in the global economy appears to be making a return. This has been helped by central banks loosening up monetary policy, which has also supported the recent rally of commodities. Seasonal pickup in demand has played a part in the rally as well.
One issue that could bring about a market correction is an abundance in supply. Many commodities have large stockpiles. Despite its recent drop, the month’s earlier oil rally is also aiding the recent commodity increase.
Will the Commodity Rebound Continue?
With lackluster economic growth and decelerated global trade, the current commodity rebound may not last. Seasonal factors could extend the rally for a few more months, but the debt that’s hovering over the global economy brings doubt to a lasting rebound. For detailed information about the weakening dollar causing commodities to rebound, visit the Personal Money Store website.