17-06-2023, 10:10 PM
How do commodity* prices signal global recession?
#Econgram_World
Facts:
1) Over the last 12 months, prices of major commodities apart from gold, sugar, and beef have been falling.
2) The S&P Goldman Sachs Commodity Index, which aggregates commodities’ prices, has dropped by 27% since its peak in June 2022.
3) According to a Bank of America survey, 97% of investment fund managers do not plan to increase their investment in commodity-backed financial instruments*.
Analysis:
1) Fund managers are reluctant to invest in commodity-backed financial instruments as they expect commodity prices to decline further.
2) Commodity prices are falling due to the approaching recession. Investors anticipate a decrease in demand for goods in major countries. That will make firms all over the world shrink their production. Consequently, the demand for commodities will fall, driving down the prices.
3) Markets hoped that China's after-COVID reopening would increase its demand, causing a rise in commodity prices. However, China’s recovery from the pandemic goes much slower than expected.
4) Developing countries, unlike developed economies, tend to rely on the export of commodities. Therefore, the fall in commodity prices will likely hurt poor economies more.
Inspired by FT
👉 Join the Econgram
https://www.ft.com/content/ada4f5c3-25a3...4bc32eb86n
#Econgram_World
Facts:
1) Over the last 12 months, prices of major commodities apart from gold, sugar, and beef have been falling.
2) The S&P Goldman Sachs Commodity Index, which aggregates commodities’ prices, has dropped by 27% since its peak in June 2022.
3) According to a Bank of America survey, 97% of investment fund managers do not plan to increase their investment in commodity-backed financial instruments*.
Analysis:
1) Fund managers are reluctant to invest in commodity-backed financial instruments as they expect commodity prices to decline further.
2) Commodity prices are falling due to the approaching recession. Investors anticipate a decrease in demand for goods in major countries. That will make firms all over the world shrink their production. Consequently, the demand for commodities will fall, driving down the prices.
3) Markets hoped that China's after-COVID reopening would increase its demand, causing a rise in commodity prices. However, China’s recovery from the pandemic goes much slower than expected.
4) Developing countries, unlike developed economies, tend to rely on the export of commodities. Therefore, the fall in commodity prices will likely hurt poor economies more.
Inspired by FT
👉 Join the Econgram
https://www.ft.com/content/ada4f5c3-25a3...4bc32eb86n