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Commodity Outlook: Cyclical pressures vs structural strengthsCommodities have been enjoying a strong revival in recent years, with broad commodities returning 27% in 2021 and 15% in 2022. A combination of fiscal and monetary support in the early phases of the COVID-19 pandemic helped to soften the damage to demand from one of the deepest economic shocks in modern times. As COVID-19 restrictions lifted, commodity demand bounced back strongly. In 2022, the Ukrainian invasion presented a supply shock, restricting energy and agricultural product supplies and further supporting commodity prices. Whilst many developed world central banks tightened monetary policy in the first half of 2022, inflationary pressures became the most extreme since 1981. Commodities proved again to be one of the best asset classes to hedge this extreme inflation. After arguably falling behind the curve, developed world central banks sought to get ahead and became the most hawkish since the early 1980s. Commodities emerged as a refuge in the storm. Cyclical headwinds have emerged Commodities, often seen as a late-cycle asset performer, struggled in late-2022. Energy prices, which had been propelling the asset class, declined by Q3 2022, joining metals, which had been weak since Q1 2022. Economic deceleration resulting from monetary tightening in developed nations weighed on the asset class. Composite lead indicators (CLIs)—designed to provide early signals of turning points in business cycles—turned decisively even before 2022 started. Commodity performance peaked later in 2022. CLIs are still declining, indicating the cyclical headwinds faced by commodities are still present. China reopening to counter economic headwinds elsewhere The global economic rebound experienced in 2021 and 2022, and the accompanying commodity rally, occurred largely without China’s contribution. Chinese policy makers pursuing a zero-COVID policy up until November 2022 hamstrung their economy, and growth was disappointing. Although Chinese exports remained relatively strong due to international demand for Chinese goods, constant supply disruptions restrained export volumes during the zero-COVID period. Now that China has abandoned its zero-COVID policies, domestic economic activity is picking up strongly. In fact, the January and February prints of Purchasing Manager Indices (PMIs) in 2023 look encouraging. Both manufacturing and non-manufacturing PMIs rose clearly above 50 (the demarcation between growth and contraction). The February figure (released on 01/03/2023) showed manufacturing PMIs hitting levels not seen since 2012, underscoring that the domestically driven recovery is reaching industry as well as services (manufacturing is more commodity-intense than services, so that is arguably the most important of two indicators). What about the commodity supercycle? We believe commodities should see long-term structural support from an energy transition and an infrastructure spending rebound. Furthermore, these catalysts could drive another supercycle in commodities. Supercycles coincide with periods of industrialisation and urbanisation when the supply of commodities failed to keep up with the growth in demand. The last supercycle occurred after China joined the World Trade Organization in 2001, which turbocharged development as barriers to commerce were removed. After two strong years of commodity market performance (2021 and 2022), could we be on the cusp of another supercycle? We believe there are some strong structural underpinnings but, for now, business cycle dynamics (including a rising risk of recession) could dominate price behaviour in the short term. Energy transition In a scenario where net zero emissions are targeted by 2050 in order to limit temperature increases to 1.5 degrees Celsius above pre-industrial levels, we should see a significant rise in demand for metals. Metals are critical for the manufacture of batteries, electrification of power energy consumption, electrolysers, heat pumps, and other technologies needed for the energy transition. International Energy Agency data indicates that, in a net zero emissions scenario, supplies of critical materials are going to be woefully short of demand, both in terms of mining and material production. Infrastructure rebound In the US, three Acts with partially overlapping priorities - the Bipartisan Infrastructure Bill (2021), the CHIPS and Science Act (August 2022), and the Inflation Reduction Act of 2022 (IRA, August 2022) – have a combined budget of close to US$2 trillion in federal spending and the infrastructure intensive projects are only just starting. Just looking at the energy funding from the Bipartisan Infrastructure Bill and the Inflation Reduction Act, a total of US$370 billion is earmarked to be spent over the next 5 to 10 years, primarily to facilitate the clean energy transition. The IRA encourages the procurement of critical supplies domestically. In order to meet the supply chain requirements, we expect large infrastructure spending on mineral extraction, processing and manufacturing. The European Union’s REPowerEU plan—designed to wean the economic bloc off Russian hydrocarbon dependency—will also require a large spend on energy infrastructure. The EU is already building liquified natural gas capacity at breakneck speed, aiming to expand capacity by one-third by 2024.1 The EU estimates that delivering the REPowerEU objectives will require an additional investment of €210 billion between 2022 and 2027. The green industrial ‘arms race’ takes off After decades of underspending for the climate policy goals governments have signed up to, we may be witnessing a tipping point. Some of the protective features of IRA (regional sourcing requirements) may propel tit-for-tat policies that drive local sourcing elsewhere. Many nations recognising China’s dominance in critical materials had already been designing policies to mitigate the risk of overreliance on the country. This process is likely to drive an upsurge in ex-China green infrastructure spending globally. Conclusions After several years of commodity market outperformance, the asset class is already experiencing cyclical headwinds. However, a China reopening is likely to mitigate some of these pressures, and we are seeing tentative evidence of China’s economy rebounding. Commodities are likely to be underpinned by global policy support for an energy transition. Whilst general infrastructure spending may also face cyclical headwinds this year, green infrastructure spending is likely to lead to a new ‘arms race’ as countries compete to support their industries and maintain energy/resource security.
CBOT:AW1!
by aneekaguptaWTE
Cyclical activity: getting into the statsStatistics (all ranges in percentages) EURUSD from Jan 2001 to Dec 2020 AUDJPY Apr 2003 to Mar 2021 USDCAD from Jan 2001 to Dec 2020 EURGBP from Jan 2001 to Dec 2020 Summary January, May, September, October have the largest OC ranges; February, June, July, August, have the smallest ones; January, March, October, November have the largest HL-OC; April, May, September, December have the smallest ones; June has the worst OC/(HL-OC) of them all; April, May, September have the best ratios; March, June, August, November the worst ones. What I might deduce is April typically has a small but solid trend that maintains its gains, May continues it (strongest of all months), then in June it ends and corrects. February I can't draw any preliminary conclusions, March trends average but fails hard eventually, if Feb starts a trend March will end up, probably in gross sideways chopiness. September starts a trend and goes from 0 to 100 the fastest, unsurprising. October continues the september trend and also is a big trend ender. The data I checked sort of confirms my bias. I can predict a bit in February, January, March, April are not very active May-June are good, I've been predicting reversals July-August it depends September & October the best, september trend but even reversal and those go far February reversals don't count on them to continue... March is unpredictable afaic but catching a move can be a 10-bagger+ Starting from late Feb actually, to mid-late March I'd say, then exit I expect nothing out of November & December So.... Another one, summing up how I see when to follow, when not too, and when to hold a little a lot or not at all: April going to be calm but not too calm hopefully. I wonder if it is the same with stocks? European ones? I wonder what I can do about it? The year is mostly done in February (sometimes January too), May-June, September-October, and sometimes the summer is easy. 5-8 months / 12. What to do the rest of the time? Sell strangles? It's not simply of lower volatility it is much more random with sometimes the same ATR. Just backtesting and analysis and learning? What industry is active in March-April & November-December, vacations? This has to be studied but perhaps I can buy in April a call or put with a June expiry in anticipation of a trend.
by MrRenev
BCHABC/USDT - Bitcoin Cash Trending UpHello Tradies! There's so many people focused on BTC it's getting a bit boring. As promised to Purple Crypto members, here is my analysis for BCHABC/USDT (or Bitcoin Cash). It is showing positive signs of an uptrend on multiple charts. On this 12H chart: - rising Stoch RSI - rising TRIX - rising MacD - some selling activity and - a steep rise in the stoch RSI on the 1D chart - it has yet to hit the peak. I shared my initial private analysis with Purple Crypto Premium members 2 days ago - great prep for a buy. This one was drawn up at that time for the purposes of Wave 1. Note that it will overshoot the top trend line if it continues upwards. I believe that we have just completed Wave 1 of this round. The good news is if this is Wave 1, it doesn't look like an extended wave...so we know what's coming. :) FYB (benefit), I've marked out on the chart where I believe we are in comparison to a similar previous rise. Signals were provided on Purple Crypto Premium which generated a 7% profit on the first rise in under 12 hours...with more to come!! Diversify, diversify, diversify.... ________________________ (I don't see anyone talking about BCH right now so let's see who copies my chart/idea - I'll be adding a link to this chart to every single "Top" copycat's chart...lol). Cheerio!
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by PurpleCrypto
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