Base metals rallied on Thursday, but their downward trend over the past several weeks has been giving signals of a recession.
copper (HG = F.) futures touched a 19-month low this week on fears of a recession. The metal used in everything from jewelry to motors and electrical wires is down 19% year-to-date.
Copper is often used as a “doctor” to measure the overall health of an economy.
“Weak commodity prices help ease inflation fears,” Fiona Cincotta, chief financial markets analyst at City Index, wrote in a note Thursday. However, commodities are on the rise again on news that China is considering a $200 billion stimulus programme.
The war in Ukraine and supply concerns sent base metals and other commodities such as oil and grain soar earlier this year. But the pendulum has recently swung in the other direction. aluminum futures contractsAli = F.), which peaked in March, wiped out its year-to-date gains. The metal is down 12% since the beginning of January.
“Obviously there was a huge premium to commodities when Russia invaded Ukraine on February 22. This really took off from the market,” Will Rinde, founder and CEO of GraniteShares told Yahoo Finance.
“If you look at all commodity prices, we will go back to what we were before the situation between Russia and Ukraine except for one commodity which is iron ore,” he said.
“Once the sector exploded higher from late January to its peak in April, it is now back on the ground and testing January lows,” Jay Woods, chief market strategist at DriveWealth, told Yahoo Finance.
A look at the SPDR S&P Metals and Mining ETF (XME“It is clear that the Fed’s aggressive rate hike has had an adverse effect on the sector,” Woods said. “Add to the supply chain that has started to ease and possibly the demand for refrigeration and that has led to a sharp reversal to 2021 levels,” he added.
“The question for me, given that the market is a leading indicator, are the upcoming Fed hikes priced in and start building from here or is this a dam stop and we can crash again?” Woods asked.
Strategists like Rhind are a long-term project, the metals sector will see a tailwind as the world moves toward a green economy.
“The big picture is that we still have a severe supply-side problem. To go to a global state of decarbonization, we will need to print trillions and trillions of dollars worth of money, and that’s all good for commodities,” said Rynd.
Enas is a stock market reporter at Yahoo Finance. Follow her on Twitter at Tweet embed
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