The new rise of the commodities
Stock markets are under moderate for fifth consecutive session of declines for the S&P500. Meanwhile, the sell-off in long-term bonds continues, causing yields to rise.
Such fears of inflation are a breeding ground for rising commodity prices and commodity-related AUD and CAD. And there are several reasons for this, which also have strong macroeconomic underpinnings.
Firstly, the coronavirus restrictions have dealt a severe blow to services, but not to production.
Secondly, traders in the markets do not have much of a choice of assets to hedge against inflation.
Thirdly, ‘cheap’ money is now an opportunity to buy oil, gas, industrial metals and agricultural commodities well ahead of a full-blown return in demand.
An important sign from the market is that the Australian and Canadian dollars have broken through their established trading ranges. And it sees as just the beginning of long-term trend.
