Sliding prices for copper and other commodities have eased concern about rampant inflation, providing some light for global stocks and US bonds, which were headed on Friday for their first weekly gains in a month.
But steep interest rate hikes and fears that the world economy may be headed into a recession have caused steep declines for commodities, which has deflated inflation forecasts.
“Inflation will remain elevated and above target but it’s likely it will start to peak over the next few months,” Andrew Hardy, investment manager at Momentum Global Investment Managementsaid.
“Markets could take that reasonably well – there’s potential for recovery later in the year.”
Copper, Tin, Oil All Down This Week
Coppera bellwether for economic output with its wide range of industrial and construction uses, is heading for its steepest weekly drop since March 2020. It fell in London and Shanghai on Friday and is down more than 7% on the week.
Tin dropped 9.7% to $24,380 a tonne, its lowest since March 2021 and is on track for a weekly percentage fall of nearly 22%, its biggest on record.
Brent crude futures are down over 3% on the week to $109.70 a barrel and off 10% for the month, while benchmark grain prices sank, with Chicago wheat off more than 8% for the week.
Gold was up 0.29% at $1,828.50 per ounce but was heading for a second straight weekly fall.
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‘Just What the Doctor Ordered’
The drops have offered some relief to equities since energy and food have been the drivers of inflation. After heavy recent losses, MSCI’s World equities index was up 0.3% on the day and 2.4% this week, setting it up for the first weekly gain since May.
US S&P futures rose 0.7% after Wall Street’s main indexes posted solid gains on Thursday.
European stocks rose 0.82%, on course to post small weekly gains, while Britain’s FTSE was up 0.73%, also showing a small uptick on the week.
“While market worries about an abrupt slowdown are the culprit behind recent moves lower in raw materials prices, lower commodity prices do feel like they could be just what the doctor ordered for the global economy,” NatWest markets strategist Brian Daingerfield said.
“So much of our hard-landing fears relate to concerns that link back to commodity prices.”
The Federal Reserve’s commitment to reining in 40-year-high inflation is “unconditional,” US central bank chief Jerome Powell told lawmakers on Thursday, while acknowledging that sharply higher interest rates may push up unemployment.
German Business Morale Hit
Germany is heading for a gas shortage if Russian gas supplies remain as low as they are now due to the Ukraine conflict, and certain industries would have to be shut down if there is not enough come winter, Economy Minister Robert Habeck told Der Spiegel magazine on Friday.
German business morale fell more than expected in June.
Bonds rallied hard on hopes that bets on aggressive rate hikes would have to be curtailed, with German two-year yields 26 basis points on Thursday in their biggest drop since 2008.
The German 10-year yield was down 4 bps on Friday after slumping 29 bps on Thursday, and was heading for its first weekly drop since mid-May.
The benchmark 10-year Treasury yield was steady at 3.0666% after falling 7 bps on Thursday.
Bond funds suffered their largest outflows since April 2020 in the week to Wednesday while equities lost $16.8 billion as markets were stuck in maximum bearish mode, BofA’s weekly analysis of flows showed on Friday. The US dollar has slipped from last week’s 20-year highs. It was steady at $1.0529 per euro and dropped 0.2% to 134.67 yen.
The battered yen has steadied this week and drew a little support on Friday from Japanese inflation topping the Bank of Japan’s 2% target for a second straight month, putting more pressure on its ultra-easy policy stance.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1%, helped by short sellers bailing out of Alibaba – which rose nearly 6% – amid hints that China’s technology crackdown is abating.
• Reuters with additional editing by Jim Pollard