Worst of Commodity Rout Over as Volatility Eases, ANZ Saysby
Headwinds from stonger dollar, volatile markets easing: bank
Bloomberg commodity index has surged from lowest since 1991
Commodity markets from oil to copper are showing signs that the worst of the rout may be over, according to Australia & New Zealand Banking Group Ltd.
Sentiment has improved as investors reduce the probability of downside risks amid slightly better fundamentals, ANZ bank analysts including Daniel Hynes said in a research note Friday. The headwinds that a stronger U.S. dollar and volatile equity markets created are easing and the market is increasingly focused on the long-term impact of low prices, according to the bank.
“This is not to say we are completely out of the woods,” ANZ said. “A weak Chinese PMI for February showed manufacturing activity isn’t likely to rebound in the short term. In some markets, a final wave of supply growth is expected to push them further into surplus. That aside, the point where markets start tightening is now close enough to see for investors.”
The speed of that tightening will differ with each commodity, ANZ said. Oil supply outages will start to increase exponentially amid increasing financial and technical pressures, a situation that is already occurring in industrial metals, it said. The rebalancing process for bulk commodities from iron ore to coal will probably take longer to achieve, the bank said.
The Bloomberg Commodity Index, a measure of 22 raw materials, has climbed about 9 percent since plunging to the lowest level in more than two decades on Jan. 20. The Bloomberg Dollar Spot Index is heading for a second weekly decline, down 0.8 percent this week.
Oil is poised for the longest run of weekly gains since May amid signs of rising U.S. fuel demand and easing crude production. West Texas Intermediate in New York is up 7.9 percent this week to $38.76 a barrel and is more than 45 percent higher from a 12-year low in February. A measure of price volatility is near the lowest in two months after surging to a seven-year high last month.
Iron ore has retreated after a record 19 percent rally on Monday pushed prices above $63 a dry metric ton. Goldman Sachs Group Inc., which maintained an end-of-year target of $35, said that the advance was unlikely to endure.