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Global markets: commodity prices are unsafe due to inflation concerns

The future of commodity contracts is uncertain due to inflation concerns affecting global markets. Crude oil fell 7 percent, coffee suffered the biggest loss in two months, while corn and copper prices also fell.

New concerns that the Federal Reserve will allow inflation to accelerate led to a divestment of most of its risk assets on Thursday. Treasury yields soared as US stocks fell from an all-time high. While physical demand was highly dependent on global growth prospects, these movements also affected commodities.

Still, evolution has become a paradox for raw materials. Markets can sometimes benefit from an inflationary environment, as investors see commodities as a good source of returns. But for this, the inflation equation must be correct: especially when economic growth is combined with concerns about a higher dollar, and inflation growth quickly becomes a drag amid expectations of declining growth. the demand.

Commodities got off to a quick start to the year as crude oil surged more than 30 percent through Wednesday. Prices of corn, soybeans and copper reached their highest levels in several years, while prices of wood soared.

So what is the reason why raw materials continue to rise? Of course, creating a field that will provide efficiency.

This enthusiasm has stalled this week as the slow spread of vaccines has raised concerns about how long it will take for energy, metal and grain consumption to return to pre-pandemic levels. This, combined with gains in the dollar, made dollar-priced commodities less attractive as a store of value.

“Treasury and dollar yields are responding to the Fed, and this is currently negatively impacting commodities,” Arlan Suderman, StoneX’s chief commodities economist, said in an article.

The Bloomberg Commodity Spot Index fell 2.4%, the biggest drop since mid-September.

West Texas Crude Oil (WTI) futures fell for the fifth session, the biggest daily loss in more than a year. The International Energy Agency said this week that global oil demand will not return to pre-epidemic levels until 2023, and that growth will slow with new work habits and the exit from fossil fuels.

Cereal prices are also falling. There are indications that growing conditions are improving for some crop growers. Beneficial rains for soybeans in Argentina welcomed the market, while favorable weather conditions in the United States, Russia and Ukraine put pressure on wheat prices.

The increase in treasury yields negatively affected the demand for alternative assets such as gold and silver that do not earn interest.

Source: Bloomberg.com

Translation: Cem Cetinguc

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