(Bloomberg) -- A key commodities gauge has plummeted since reaching an all-time high a month ago as recession fears ravage what was one of the most resilient corners of the market.
The Bloomberg Commodity Spot Index, which tracks 23 energy, metal and crop futures contracts, has lost more than 20% after touching the record in June. Prices for everything from gasoline to wheat are slumping on concerns that a stagnating economy will hurt demand. Though commodity supplies remain tight, the retreat could provide much-needed relief to consumers struggling with surging inflation.
Commodities had been advancing since the early days of the worldwide pandemic as massive government spending and ultra-low interest rates bolstered demand while production was curbed. Russia’s war in Ukraine exacerbated supply disruptions.
But sentiment has shifted as fears grow that the Federal Reserve won’t be able to tame the highest inflation in four decades without throwing the economy into a recession. A surge in the U.S. dollar -- which makes it more expensive to buy raw materials priced in the greenback -- has also weighed on U.S.-traded commodities. Hedge-fund managers recently slashed bets on higher commodity prices to the lowest in almost two years.
Still, recession is a “highly anticipatory concern”, and markets have “clearly overreacted” by bringing prices for commodities back to pre-war levels even as supplies of raw materials such as oil remain tight and vulnerable to disruptions, according to Greg Sharenow, who manages a portfolio focused on energy and commodities at Pacific Investment Management Co.
While the recent surge in energy and food costs worked as a “very big tax” weighing on consumption, demand should re-accelerate in the next months and keep markets tight as China’s economy rebounds, Sharenow said in an interview.
©2022 Bloomberg L.P.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.