Commodities are getting hit hard today as the big unwind across the asset class continues.
Below is a quick snapshot of the damage.
- WTI crude oil: -1.1%
- Brent crude: -1.2%
- NYMEX gasoline: -1.9%
- NYMEX heating oil: -0.9%
- Gold: -1.4%
- Silver: -2.3%
- Platinum: -2.1%
- Corn: -1.9%
- Wheat: -1.2%
- Coffee: -2.0%
Citi’s head of commodities research, Ed Morse, is out with another note to clients on the end of the “supercycle” in commodities that has caused prices to soar in recent years.
Below is Morse’s take on what is going on:
Citi expects 2013 to be the year in which the death bells ring for the commodity supercycle after its duly noted sunset, ushering in a new decade of opportunities based on how individual commodities will perform against one another and against broader market indicators such as equities or currencies. It will be a period of focus on unique individual commodity cycles and new relations emerging between and among commodities and other asset classes from fixed income to foreign exchange to global equities.
The downward shift in China’s economic growth rate combined with the decline in the commodity intensity of growth have a permanent and profound impact on global markets. China has reached a new phase, less focused on infrastructure and urbanization, both of which are highly commodity intensive. Lower single-digit economic growth shifting to a greater emphasis on consumption rather than investment hits industrial metals, bulk commodities and to a lesser degree energy demand.
The recent separation of commodities from equity markets is in many respects a return to normalcy, given the sensitivity of commodity prices to coincident conditions and of equities to anticipatory economic changes.
The denomination effects of changes in the relative value of the US dollar is likewise going to continue to impact commodities, and Citi’s long-term bullish view of the US dollar is likely to place an even further drag across the asset class this year. But to the degree that commodity-producing countries depend on specific commodity exports, differentiated conditions should impact the FX values of different commodity currencies in varied ways as well, providing further opportunities for investors.
Morse called the collapse of oil in 2008, when it was soaring to record prices that summer.
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