Commodities have been having an ugly year so far.
Some experts are starting to smell deflation.
Capital Economics’ John Higgins says the IMF’s updated forecasts from earlier this week are too optimistic, and that inflation risks are benign at best:
…recent falls in commodity prices may have further to run and that the recession in the euro-zone is set to deepen, suggests that inflation may fall even further in the euro-zone in 2014 than the IMF envisages.
In the wake of down trading Friday, Art Cashin wrote the following:
…a distinct deflationary chill was blowing across the asset classes. Gold got absolutely pummelled as did silver, copper and oil and scores of others. Some tried to chalk it up to global slowing.
Traders, however, pointed to the sharp drop in yield on the U.S. 10 year Treasury note. Had it been accompanied by a spike in the dollar, that might have signaled a flight to safety on the Cyprus news. But, with the dollar rather stable and commodities broadly pummelled, the unifying theme seemed to be deflation.
Doom-sayer Marc Faber was saying similar things Friday in an apperence on CNBC (via Mish Shedlock):
Today we have commodities breaking down including gold. At the same time we have bonds rallying very strongly. If you stand aside and you look at these two events, it would suggest that they are strongly deflationary pressures in the system. If that was the case, I wouldn’t buy stocks or sovereign bonds because the stock market would be hit by disappointing profits if there was a deflationary environment.
It looks like the faint glow of yesterday’s upbeat Beige book report has already worn off.
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