Oil has crashed more than 15% since the highs this month above $48 a barrel. Copper and other base metals have crated to six-year lows.
It looks like the perfect storm – global growth concerns and fear of an imminent Fed rate hike combined with a global growth outlook that the OECD said last week will leave 2015 with the worst growth rate globally since 2009.
What concerned the OECD was the sharp drop off in global trade.
It’s a theme picked up on by Deutsche Bank strategists in their DB weekender publication released over the weekend. The bank highlighted exactly why this slowdown in global trade is a bad sign for global growth. It’s something stock and commodity readers seemed to pick up on last week.
Here’s what Deutsche Bank said:
Weak trade – The health warnings keep coming. The OECD pointed out this week that an anaemic two per cent growth in world trade this year portends an ailing global economy. Furrowed brows are certainly warranted. Over the last two decades, differences in trade growth explain nearly half the variation in output expansion among advanced economies as well as the 30 largest emerging markets.
But they didn’t stop there highlighting why this drop off is so alarming and points to a continuation of a longer cyclical slowdown. They highlight two facets which are “alarming”:
First, G20 nations with higher pre-crisis trade growth rates are experiencing a greater drop in that growth post-crisis, suggesting a systemic roll-back of the pre-crisis trade expansion. Second, as global trade-to-output languishes below its 2008 peak of 52 per cent for the seventh year, history suggests these slumps tend to be prolonged. Trade-to-output took 16 years to regain its 1980 peak and six decades to retake its pre-first world war level.
Slower growth for longer it seems. No wonder the bottom has fallen out of crude oil, copper and other commodities lately.
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