Imminent Commodity market correction?
Although we started to discuss a commodity market correction towards the end of April, the reversal of the Baltic Dry Index from its high around 3250 at the beginning of May gave us a confirmation of how demand was not meeting expectations – expectations of high consumer activity have been too optimistic.
Markets have pushed asset prices to such extreme levels that this will inevitably become an issue for governments, particularly as the most vulnerable will be affected by rising commodity prices, while lower growth will impact on earnings expectations.
We have recently commented, ‘Commodity markets are filled with consensus trades, and look ready for a sharp correction’. With the Dollar at key support, price-wise, a correction in commodities that are priced in USD may not be immediately apparent; however, a sharp and continued fall in the USD will increase consumer and producer price pressure.
When chairing a meeting of China’s Politburo in April, Xi Jinping repeated his mantra that houses are ‘for living in, not for speculation’; recently, policy makers signalled they will revive efforts to introduce a long-delayed national real estate tax, and their trial of a levy on home ownership may come sooner than expected.
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