Commodities’ Crude Cresting Crease
After a prolonged slide on signs of a “super cycle” peak and China moderation to 7 percent GDP growth, the GSCI commodities index has outperformed standard emerging market benchmarks with oil and gold spiking on the latest Mideast geopolitical confrontations. Mainland PMI readings again over 50 have dispelled chronic “hard landing” fears with natural-resource oriented South-South trade now one-fifth of the total, according to the IMF. In Asia, Indonesia’s current account imbalance swelled on Beijing’s coal import ban, and analysts calculate that three-quarters of recent Latin American economic expansion was due to raw material sales. In Brazil, the US was displaced as the top trading partner, and half a dozen other countries in the region depend heavily on Chinese agricultural and metals demand. Africa is also energy and mining axis with $200 billion in bilateral commerce and the Export-Import Bank is its largest creditor. Gold was down 25 percent in the first half, and India as a huge buyer just announced new curbs including a tax surcharge to limit the balance of payments toll. Central banks have boosted that component in reserves since the 2008 crisis, with Venezuela becoming a top holder when it allocated 70 percent to snub both the dollar and euro. As developing markets move to defend their currencies illiquidity has hobbled ready access although safe haven value has recovered amid continued strife in Egypt and preparation for an international military strike in Syria in response to documented chemical weapons use. The strategic implications have likewise restored oil prices to above $100 /barrel as the assumption often in major exporters’ budget planning. GCC markets nonetheless have been bruised by looming armed action with the UAE trying to maintain its 50 percent frontier gain position before transitioning to the MSCI core index.
Thus far the commodity blip has not revived the food and fuel price panic of five years ago bringing widespread social unrest and IMF emergency aid and reigniting inflation. Bond and equity fund outflows doubled in the week the US and Western allies readied for conflict with Damascus, with the EPFR-tracked universe at $1.5 trillion. Both traditional and ETF stock vehicles dominate, but the main MSCI benchmark lost over 10 percent through August despite record low valuations. For fixed-income a quarterly Fitch survey of European investors pointed to deterioration for corporate issuers in particular, with one-third citing refinancing risk. Central Europe, especially Hungary and Poland, have escaped the worst of the exodus despite their dual implication in the Eurozone mess as upcoming German elections herald summer’s end. The candidates there already acknowledge Greece needs to cover another EUR 10 billion immediate shortfall and Cyprus will not lift capital controls soon as its recession worsens. In France officials conspicuously cut summer breaks but were less severe with state pensions, where eligibility and benefits under reform will draw from the same essential stockpile
