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Commodity Strategy Comment — A remarkable rebound after an early summer lull

The commodity market has witnessed a remarkable rebound since June. The Handelsbanken commodity index, including futures from all sectors, gained 10 %, which is due to a combination of various risk premiums, a lower USD and further cutbacks in Chinese supply reform. All told, there is a fragile trend of rising prices.

Martin Jansson, Strategist |

Råvaruplanket — June 28, 2017

För sent att sälja till midsommar
Mellan nyår och midsommar föll Brentoljan nästan 25%. De flesta basmetaller ligger fortfarande på plus även om uppgången kommit av sig. Samtidigt har riskförsäkringen guld stigit 10% under årets första halvår. Vad har hänt? Jo den globala, självuppfyllande återhämtningen har kommit av sig.

Kortvarig Trumpyra
Optimismen efter det amerikanska valet i november förra året har allmänt betraktats som en "Trump trade". Initialt visade USA bättre ekonomisk statistik men det var i hög grad en effekt av stigande oljepris, uppgång i Kina och QE, snarare än Trump. De här tre drivkrafterna har tillsammans haft kraft att lyfta ekonomin och tillväxtförväntningarna, men effekten har nu avtagit och Trump ser ut att få svårt att kompensera för det. USA:s konjunktur har ett ganska starkt samband med förändringen i oljepriset sedan skifferboomen 2010. Årets nedgång i oljepriset kommer därmed tynga USA-data under andra halvåret.

Förtroendet för OPEC är svagt
Det halvårsvisa OPEC-mötet i Wien gav ett styrkebesked från den växande kartellen som aldrig har haft en bredare uppgörelse - 24 länder deltar. Det hjälper dock föga när den växande producenten, USA, står utanför kartellen. Lagren faller inte som OPEC önskar och vi behåller USD 40 som riktmärke för oljepriset vid årets slut.

Basmetallerna följer Kinas minicykel
Kinas återhämtning verkade solid under första kvartalet men april och maj månads makrodata visar att tillväxttoppen för den här cykeln ligger bakom oss.

Martin Jansson, Strategist |

Commodity Bulletin — Turbulent first six months

Too late to sell by midsummer
Between New Year and midsummer, the price of Brent oil fell by almost 25%. Most base metals are still showing gains during the year, although increases have petered out. At the same time, gold - the traditional form of risk insurance - has increased by 10% during the first six months of the year. What has happened? The global self-fulfilling global recovery has petered out.

Short-term Trump euphoria
The optimism since the US election in November last year has generally been regarded as a "Trump trade." Initially, the US produced better economic statistics, but this was largely due to an increasing oil price, an upswing in China and QE, rather than Trump. Together, these three driving forces have been strong enough to lift the economy and growth expectations, but the effects have now subsided, and it will probably be difficult for President Trump to compensate for this. The US economic climate has been quite strongly linked to changes in the oil price since the shale boom of 2010. Thus, the downturn in the oil price will weigh heavily on US statistics during the second half of the year.

Low level of confidence in OPEC
The half-yearly OPEC meeting in Vienna was a show of strength from the growing cartel. A broader agree-ment has never previously been reached - 24 countries are taking part. However, the fact that the US - the growing producer - remains outside the cartel does not help. Stocks are not falling in the way that OPEC would like, and we retain our year-end oil price forecast of USD 40.

Base metals to follow China's mini-cycle
China's recovery seemed solid during the first quarter of the year, but macro data for April and May demonstrate that the growth peak for this cycle is behind us.

Martin Jansson, Strategist |

Commodity Strategy Comment — OPEC and non-OPEC tighten their belts

Focusing on details was never likely at the spring OPEC meeting in Vienna. The group decided to extend the current cut by nine months. Instead of concentrating on specifics, the meeting and press conference seemed to be arranged to create the impression of a strong alliance between the world's two largest crude oil producers, Saudi Arabia and Russia.

Martin Jansson, Strategist |

Commodity Strategy Comment — The last hurrah from Vienna

We see a close to 100% probability of an extension of oil production cuts from OPEC at the upcoming OPEC meeting in Vienna on May 25. For H2 2017, we see compliance with proposed cuts as a much more difficult issue than the deal itself. We think there is a 95% probability that Russia will sign on for a new six-month production cut period, but we see only a 30% probability that Russia will keep compliance for that period. Oil cuts during H2 2017 will come at a high cost due to seasonally higher production. We believe the next big price turn will come from non-compliance from Russia in particular but also other OPEC countries, as growing US production shows evidence of the futility of subsidising growth there by keeping production off stream. Saudi Arabia seems assured that production cuts at any price are the right way to go; it seems to us that the longer OPEC tries to keep production down, the more such measures backfire. 

Martin Jansson, Strategist |

Commodity Bulletin — At the peak of a mini-cycle

Optimism is growing
Global optimism, coupled with strong economic data, has spilt over into an expectation of a self-fulfilling global recovery. We see three driving forces behind the pick-up in global economic activity since last au-tumn. The first two relate to stimuli from central banks' monetary policy and the expansive policy in China. The third is the recovery on the commodity markets - particularly for the price of oil. The optimism since the US election in November last year has generally been regarded as a "Trump trade". We believe, however, that the stronger economic sta-tistics are largely an effect of the three factors men-tioned above, rather than of President Trump. Togeth-er, these three driving forces have been strong enough to lift the economy and growth expectations, but the effect will subside later in 2017, and it will probably be difficult for President Trump to compen-sate for this.

OPEC to extend the agreement?
The half-yearly OPEC meeting in Vienna was a show of strength from the slumbering cartel. No sooner have the fuel pumps been cut off than the focus is on the group extending the agreement at the next meeting on May 25. The market expects an extension, but we argue that a surprise departure from the agreement is actually not that unlikely. We believe that the oil price will approach USD 40, regardless of the outcome of the OPEC meeting.

Base metals to follow China's mini-cycle
It looks as if China's 2016 recovery will be further maintained. The latest data harvest points to at least another six months of strong activity.

Martin Jansson, Strategist |