2023’s commodities decline could stabilize in H2

Citibank analysts say commodities have underperformed other asset classes so far this year, but the decline may be coming to an end. The Bloomberg Commodity Index is down 9.3% since the start of the year, while equities, government bonds and corporate bonds are up. The Bloomberg Commodity Index posted a 13% gain in 2022.

Citi’s memo on Monday said that this year’s rate of decline should stabilize this month and next due to weather risks such as drought in the Midwest, other seasonal factors, and the extent of commodity declines that have already occurred. rice field.

Agricultural products are usually agricultural products grown in tropical climates. Brazil is the world’s leading producer of Global Sugar and Arabica Coffee Futures. Brazil is also the world’s top producer of oranges, which influences ICE futures on frozen concentrated orange juice. India, China and the United States are world leaders in cotton production. Ivory Coast and Ghana now produce more than 60% of the world’s cocoa beans, the main ingredient in chocolate confectionery.

The soft commodities sector rose 1.79% in the second quarter, with three out of five member countries gaining. Three of the five soft commodities posted double-digit gains in the first six months of 2023, with coffee and cotton futures down less than 4%.

Oil prices fell by $1 a barrel on Monday as the possibility of another rate hike in the US increased, but losses were limited by cuts in crude supplies by the biggest oil exporters Saudi Arabia and Russia. Brent crude futures dropped 79 cents, or 1%, to $77.66 a barrel at one point. It hit a two-month high at the start of trading.

US West Texas Intermediate crude fell 94 cents (1.3%) to $72.90. “Traders are very nervous about rising interest rates and demand could cool off quickly, taking profits after last week’s gains. He added that some investors have done so.

After Saudi Arabia and Russia announced new production cuts last week, both benchmarks rose more than 4.5%, putting the OPEC+ group’s total production cuts at about 5 million barrels per day (bpd), or about 5% of global oil demand. became.

San Francisco Fed Chairman Mary Daley reiterated on Monday that two more rate hikes this year would likely be needed to curb inflation that is still too high, adding Cleveland Fed Chairman Loretta Mester. announced a rate hike.

Higher interest rates could slow economic growth and reduce oil demand. The US Department of Labour said last Friday that monthly job growth was the weakest in two and a half years and wage growth was solid. The data raises the possibility that the Fed will raise rates at its meeting later this month.

Meanwhile, Chinese factory prices fell at the fastest pace in more than seven years in June, according to government data, suggesting a slowing recovery in the world’s second-largest economy.

But the head of the International Energy Agency (IEA) said the market could remain tight in the second half of the year due to demand for oil from China and developing countries, as well as cut OPEC+ supplies, despite a weak global economy. Said expensive.

Markets will also look to the US Consumer Price Index (CPI) data later this week and a series of new economic reports from China to gauge demand. Oil prices fell $1 on concerns about interest rates, but OPEC+’s production cuts held back the fall.