Commodities bubble has burst, now for recession bust

The Market Ear catching up with MB today. It looks to me like the Wall Street commodities bubble has burst but not yet the underlying real economy version. As the recession takes hold and real commodity demand is hit hard there is more downside yet for dirt and oil.

Oversoooold commodities…
…but do you like catching falling knives?
Dr Copper – oversold mania
Copper is down so much you almost get tempted to buy some for a bounce…even if you are bearish this entire space. Do we see a short term hammer candle here?
GS on the oil price: overshot
Goldman believe this move has overshot and that the key to their bullish view still remain. On the short term technicals of the move: ” As is repeatedly the case with oil, the move lower was then exacerbated by technical factors and trend-following CTA flows, such as Brent trading through its 100-day moving average, as well as through the strikes of puts with large open interest (where negative gamma effects invariably accelerate large price sell-off). It is important to finally note that this sell-off occurred amidst seasonally low post-July 4 trading liquidity. From this perspective, this sell-off in oil prices is not all that surprising, similar in set-up and magnitude as the one after Thanksgiving 2021, most recently”
Oil – 2008 poetry
Most people are comparing the current oil market with the oil crisis in the 70s, the OPEC embargo 73-74 and then the Iran/Iraq war in 1980, which led to recessions and high inflation accompanied with high interest rates. Citi points out a slightly less bullish view worth considering, especially for those that see upside as the only option. There are differences compared to the 70s and you could argue that we are in a similar set up to what we saw during the GFC. They write:”Like then, so today high energy prices preceded the events that triggered a recession. Brent crude oil breached $140/bbl in Jul’08, equivalent to over $160/bbl in real terms, only to fall to $40/bbl by year-end before re-balancing at $90/bbl deferred and remaining there for the next four years. “
Wheat mania – the inverse edition
Wheat needs to almost double in order to reach invasion panic highs. Wheat, corn and soybeans are all trading close to recent lows.
Palm oil limit down
Should on the margin decrease risk for hunger crisis as well on the margin be good news in terms of inflation.
China and metals
Note the almost perfect moves between BCOMIN (metals sub index) and the Yuan (inverted). Yes, the Yuan matters…
How bad is 2.25?
Well, at least much less bad than 3.1%…US 10 year break even inflation expectations have moved down to 2.25%, their lowest levels of the year, trading at levels last seen in September 2021…
Weimar hyperinflation on hold
German 10y inflation expectations have “collapsed” to 2.09% due to “positive” forces of recessionary fears and structural econ weaknesses.
Headline CPI is now even more likely to peak out in 2H…
With respect to inflation, while it is likely to remain elevated for longer, many project that headline CPI will roll over in 2H. The recent Brent would go a long way in ensuring this forecast comes through.
Houses and Holes


  1. cZ0mzqFILC8zoVHq

    So that is it? Go back to our homes, nothing to see here . . . everything is under control? Do you have a position on the recent FT opinion piece which casually suggested that the oil market is as vulnerable to Russian weaponization as the natural gas market?
    ‘That if Putin becomes tired of remaining customers lightly processing his crude and selling it on, or otherwise wishes to achieve some political objective 3-5 million BPD could be shut in with little long term consequence (to Russia).’

      • cZ0mzqFILC8zoVHq

        Well, I mean, I don’t purport to have insight like them big city commodity traders, but my gran used to say “there is many a slip twix cup and lip”. It is the height of Northern hemisphere summer, US gulf refineries are running 97.5% capacity while the strategic reserve is being drawn down (before a single hurricane). European demand is so insatiable that the inevitable disasters at US facilities serve to lower domestic pricing, and apparently the only reason Euro demand has been serviceable is they have been substituting Russian gas into Russian oil and, incomprehensibly, Russian coal. Thanks Greta!
        A savage war of attrition is raging in the heart of Europe, which cannot be de-escalated because one of the parties, nominally a member of the community of nations and a partner, has off-handedly said nuclear weapons are in play whenever they feel slighted or obstructed.
        The best case scenario is an engineered recession which creates just enough demand destruction to help commodity producing nations remember their place and go back to accepting worthless paper, from developed nations who sat out the COVID epidemic and hoarded vaccines, in exchange for their tangible stuff.
        And it is only Wednesday.

  2. SuperfluousMEMBER

    Prefer to digest some critical disinterested analysis rather than lazy, childish told-ya-so’s…

  3. Deflation people, not inflation. Real structural inflation comes later (after more easing), we are not there yet.

    • Can understand that view.. on the other side of the coin tho.. wages growth is starting to get entrenched?? I’ve just had to put through a 6% odd pay rise for everyone in my business…Can’t see that ever being unwound… so once its into wages, it becomes sticky…Becomes entrenched in expectations….

      Hard to make reliable predictions about the future hey!