"People are starting to get confident that this rally is real," says Ben Ross, who co-manages commodity strategy at Cohen & Steers. "Most commodities that we cover have bottomed from a price and from an oversupply situation.”
Among surging raw materials prices are oil, which has doubled from its lows of about a year ago, and zinc, which has gained 90%.
Money is being raised for new commodity funds, and flows into commodity index funds are showing signs of recovery since last year's price gains. Total investments in the Bloomberg and S&P GSCI indexes have risen to about $115B from a low of just $60B a year ago. They peaked at about $300B in 2011 - the last time the industry tried to pick a bottom in commodities.
Stocks open with only mild losses, a hugel improvement from steep overnight losses for stock futures as well as the U.S. Dollar Index and other risk-related assets; S&P -0.4% at 2129, Dow -0.1% at 18307, and Nasdaq -0.7% at 5154.
In Europe, the U.K. FTSE +0.3%, France's CAC -0.1% and Germany's DAX -0.2%; in Asia, Japan's Nikkei closed -5.4% and China's Shanghai Composite finished -0.6%.
The U.S. Dollar Index now +0.2% as investors pare back their knee-jerk reactions, the euro -0.3% vs. the dollar, and the dollar/yen pair has narrowed its loss to -1.2%.
WTI crude +0.2% at $45.08/bbl in choppy trade, benefiting from the potential repeal of regulations facing oil and natural gas, although a negative read of the weekly API inventory report has kept a lid on gains.
"I just received a call from Secretary Clinton," says Donald Trump, set to become America's 45th president, in a victory speech. "She congratulated us -- it's about us -- on our victory, and I congratulated her and her family on a hard-fought campaign."
"Now it's time for America to bind the wounds of division -- time to get together," he says. "I pledge to every citizen of our land that I will be president for all Americans."
Equity futures down as much as 5% previously are in relative recovery: S&P e-Minis -2.6%; Dow -2.2%; Nasdaq futures -2.9%.
The dollar's recovering as well: -1.7% against yen, -0.6% against Swiss franc. The pound is up just 0.2% against the greenback.
Gold is up 2.8% to $1,310; silver +2.2% to $18.755. Crude is off 1.1% to $44.48.
"Citi is especially bullish commodities for 2017," say Ed Morse and team. "The oil market is treading water for now, but the oil price overshot to the downside earlier this year and this is clearly setting the stage for a bullish end to the decade.”
Unlike last year's strong Q2 commodity rally which collapsed in Q3, this year's move looks more sustainable thanks to considerable tightening in physical markets.
"Global demand continues to grow at a moderate rate while the pullback in capital spending is reducing not just supply growth but total supplies across nearly all extractive industries.”
What about Brexit? The damage to global growth should be limited in extent and duration this year, and stronger growth in the U.S. and China will be the story in 2017.
Recent advances aren't rooted in fundamentals, says Barclays analyst Kevin Norrish, in a report titled "Buffalo Jump." The risk, he says, is that the investing herd may very quickly decide to ring the register on recent gains.
Copper (NYSEARCA:JJC) could fall 20% and oil could drop back to the low $30s.
“Key commodities markets such as oil and copper already face overhangs of excess production capacity and inventories, but also now face another obstacle in the recovery process, that of positioning, which is now approaching bullish extremes."
That bright green across the screen isn't in honor of St. Patrick's Day. Instead, it's a strong bid for commodities and foreign currencies after the Fed yesterday cut its forecast for rate hikes this year to two from four.
This just in: Crude oil (NYSEARCA:USO) is up on the year, rising 1.6% today to $40.63.
Other movers: Gold (NYSEARCA:GLD) +3.25% to $1,270. Silver (NYSEARCA:SLV) +3.4% to $15.74, Copper (NYSEARCA:JJC) +2,5% to $2.29, Platinum (PPLT, PTM) +3% to $988, Lumber (NASDAQ:WOOD) +3.5% to $297, Beans (NYSEARCA:SOYB) +0.6% to $899.50, Corn (NYSEARCA:CORN) +0.5% to $370.25, Wheat (NYSEARCA:WEAT) +0.85% to $475.
The euro (NYSEARCA:FXE) +1.15%, yen (NYSEARCA:FXY) +1.3%, pound (NYSEARCA:FXB) +0.85%, loonie (NYSEARCA:FXC) +1.15%, aussie (NYSEARCA:FXA) +1.3%, swissie (NYSEARCA:FXF) +1%.
Among those hit hardest are sugar, nickel, and natural gas, while gold, palladium, and beans have held up better (only on a relative basis).
No secret here: China is (by far) the world's largest consumer in nearly every global commodity market, so discerning where that country's demand is headed is key. On that note, the price action in copper - which has a pretty good correlation to China's economy - suggests GDP growth there of just 5% vs. the government's official estimate of 7%.
Still, prices for many commodities - copper among them - are approaching the point where they're better left in the ground. The conclusion, says Barclays: A bottom may be in, but we could be on the floor for a long time.
In an effort to increase its influence on global commodity prices, China will allow outside traders to transfer foreign currency or yuan funds into China to trade on its commodity futures markets, signifying a major reform for the world's top consumer of many raw materials.
Currently, foreigners have very limited access to China's commodities markets. Companies are only allowed to trade via brokers after establishing a locally registered non-financial unit, which is expensive.
Starting August 1, trading or brokerage firms can open special accounts in designated Chinese banks. The funds must be used for trading only.
The China Securities Regulatory Commission says that the Shanghai Futures Exchange's crude oil futures will be the first contract available for trading by foreigners. They may also apply for a direct trading license with the exchange. No information on the timing of access to additional futures contracts is available.
"China’s economic transition and the inability of other emerging markets to pick up the slack are driving slower demand growth across the commodities complex,” says the team at Citi. "The extent of slowdown is likely to vary by commodity.”
Hardest hit, says Citi, will be bulk commodities like coal, iron ore, and steel thanks to their exposure to China's manufacturing, infrastructure, and property sectors.
Oil consumption growth in China and the "Emerging 5" - India, Southeast Asia, the Middle East, Latin America, and Africa - will be 2.7% from 2014-2020, and 2.3% from 2020-2025 vs. 4% from 2001-2011.
The upside from China no longer being as dominant: “Global demand as a whole should become less cyclical as a downturn in one key economy has a lesser impact on overall demand."
Notable for being at the bottom of the list for what is now three years running are commodities, which fell 18.6% in 2014, following an 11.1% decline in 2013, and a 2.1% drop the year before that. Will the last become first?
A tough year for commodity prices continues all the way into the close of the last session, with precious metals, energy, grains, and most of the softs slumping sharply. 2014's big commodity winner, naturally, stands alone in the green today - coffee is up 2%.
The PowerShares DB Commodity Index Tracker (DBC -1.9%)
Alongside the commodity slump, both this year and this session, is a stronger dollar, set to close 2014 out at its highest level in at least five years.