Released May, 2019
<strong>Commodities Gaining Favor vs. Elevated U.S. Equities, Greenback</strong>
(Bloomberg Intelligence) -- Broad commodities are gaining value, notably vs. the outperforming U.S. stock market -- a primary dollar tailwind and thus commodity headwind. A risk/reward inflection point is near, in our view. A definitive U.S.-China trade agreement, which we expect, should solidify the commodity foundation, notably agriculture (grains) and metals (base). Oversupplied crude oil appears elevated with U.S. equities -- their mean reversion potential is a primary broad commodity market risk. Yet, when U.S. equity outperformance subsides, commodities should gain support from a peak dollar.
Bullish energy momentum is at elevated potential of passing to agriculture. A rare grain-price growing season risk discount, record net shorts and low volatility elevates longer-term bottom potential. Metals should be primary beneficiaries of a peak dollar.