Goldman Sachs was the great commodity cheerleader of this cycle. It has gone quiet of late perhaps because it has a lot of angry clients. Certainly, the recent data suggest a reversal of the great commodity super cycle trade that has unwound so spectacularly in the past few months.
RBC has more:
While major commodity indexes did improve over the course of July after an early month tumble–in average m/m terms, it was pretty ugly. For notional AUM across the commodity investor products universe we analyze in this piece, July was quite a negative month for the commodity space across the board. While the supply chain/natural resource-driven inflation narrative continues, prices faltered, recession headlines continued, and over the course of the last month, underlying outflows proliferated. Notably, both the commodity-linked index space and commodity-backed ETP space had tough months on both a price and underlying basis. The question is whether this is just a couple-month stumble after a strong start to the year, or rather a more enduring move. We do not think that we should be writing off the space just yet, but this is proof that commodities are indeed not invincible.
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In the index space specifically, price effects were still negative but some what milder m/m. Underlying flows were also negative but far worse m/m, which pushed total index AUM down to $367.5bln, from a peak of $462.9bln just two months prior. Energy and agriculture were the weak spots, but metals did not help either on a notional basis. This is actually not as tough of a month relative to the ETP space, where some readings set negative records. In particular, both underlying outflows and negative price effects were at their strongest in our data. This meant that total commodity-backed ETP AUM fell to $252.5bln, well off the peak in April of $302.5bln. With no new data available for MTNs, this means that the space suffered noticeably in July. Overall, recession worries, rising rates, and commodity fundamentals all matter. July was clearly a weaker month, driven by worries that overrode some of the other pressures and fundamentals to date. Regardless, commodities as an asset class remain in quite a harsh spotlight this year, which can and has now cut both ways.
That sure looks like a blow-off top to me. With oil now breaking below $100 threatening substantial downside ahead, and the Chinese property bust ongoing, this cleanout likely has further to run.
Anybody telling you this is anything other than a typical “up the escalator and down the lift” commodity cycle pattern does not know what they are talking about or is selling you something.