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Commodities Dance to Own Beat, Defying Cross-Asset Convergence

Everything about today’s markets screams convergence -- from global equity gauges storming out of the gate in 2018, to developed and developing-market bonds fluctuating in near-unison. There’s one glaring exception: commodities.

The 12-week correlation among a broad swath of futures contracts traded on the London Metal Exchange has been waning for years. According to Macquarie Group Ltd., major catalysts for common commodity movements have petered out, so it’s time for metals analysts to prove their mettle.

“The rise of China, the GFC, the Eurozone crisis and the Chinese debt crisis have all been crucial drivers of metal prices, increasing their price correlations,” Vivienne Lloyd, industrial metals analyst, observed in a Jan. 26 note. “But as the macro environment becomes more benign, we expect such correlations to fall, meaning analysts need to understand individual characteristics more.”

Case in point: Nickel futures jumped more than 7 percent last week as enthusiasm over its potential applications in electric vehicles swelled. Platinum futures, by contrast, posted a tiny loss.

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