Traders offload their commodity bets due to recession concerns
Trends
July 7, 2022
Prices of commodities including copper, wheat, corn and other metals are falling, and a recession is the key suspect.
What’s the big deal? Copper, used in all parts of manufacturing and construction, is often used to track the economy’s health.
Falling copper prices can indicate an incoming recession — but historically hasn’t always been a reliable tracker.
- How it started: Russia is the largest exporter of wheat, natural gas and nickel — and a major exporter of coal, refined aluminum and oil. The Russian-Ukraine invasion sent commodity prices soaring.
- How it’s going: Prices have dropped significantly since the end of April. Recession fears have taken over, and traders offloaded their commodities positions.
Bearish bets on copper are at their highest level since 2015 — sending copper prices to 19-month lows. Other metals and wheat prices have now given up most of their gains.
The iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK) — a basket of mining stocks — is down 18% in 2022.
Investors: This could be good news, depending on which side of the trade you’re on. Falling commodity prices can bring down prices of goods and ease inflation, but it could take time before the economy finds its footing.
- Global factory growth slowed in June, and manufacturing in the eurozone has slowed for the first time in two years.
- Per Stephen Innes at SPI Asset Management, “there is absolutely no path to a soft landing for the global economy, there are few, if any, places to hide” (Reuters).
