The post-covid global recovery should help to sustain commodity performance in the near-term, a boon for investors looking to hide from inflation or diversify portfolios, according to Jack Manley, Global Market Strategist at JP Morgan.
Are we in a commodity super-cycle?
“With the global economy on the mend and a large cyclical upswing anticipated over the coming years, it makes sense that the potential of a super-cycle should be raised. However, a number of trends seem to suggest that this thesis may not hold water.”
“On the energy front, further upward price pressure seems dubious. Both the US and OPEC have an enormous amount of spare capacity, allowing production to increase in the face of rising prices; moreover, coordinated global efforts to address climate change will result in lower demand for fossil fuels in the decades ahead.”
“The sharp increase in both lumber and copper prices is due to a housing boom. The question, therefore, must be about the durability of this surge. Given global policymakers awareness of rising home prices – particularly in China – and the slow rollout of any new infrastructure investment in the US, the red-hot global housing market will likely cool in the years ahead.”
“Food and precious metals round out the commodities group. A reacceleration in economic growth should temporarily boost demand for food, but poor demographics point to a slowdown in longer-term population growth; and while gold and other precious metals would typically be beneficiaries of easy global monetary policy and inflationary concerns, the rise of cryptocurrencies has taken some appetite away from this sector.”
“The post-COVID-19 global recovery should help to sustain commodity performance in the near-term, a boon for investors looking to hide from inflation or diversify portfolios. However, it seems premature to call this anything more than a strong recovery.”