TS Lombard argues that receding central bank liquidity, coupled with intensifying concerns over a global recession, is behind the routing of commodity markets.
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- Commodities looked like the only game in town earlier this year as investors sought protection from higher inflation. Receding central bank liquidity, coupled with intensifying concerns over a global recession, is
now exposing the limits of commodities as an effective portfolio hedge. - Physical demand is more likely to cool than accelerate from here, although restricted supply and thin inventories are set to keep fundamental balances tight for as far as the eye can see.
- For now, the mix of a souring macro outlook and fragile risk sentiment is causing some predominantly “financial” demand destruction, catalysed by the Fed’s hawkish message in June. As air comes out of the market, lingering “hard landing” fears leave the burden of proof increasingly with the bulls.
