Source: REUTERS
- Oil down 1% after earlier support from Middle East tension
- Copper sheds early gains from growth in China services activity
- Softer U.S. data may make central bank rate cuts easier
By Naveen Thukral and Robert Harvey
SINGAPORE/LONDON, Aug 5 (Reuters) – Commodities including oil, natural gas, metals and agricultural products joined a global sell-off in equities on Monday as fears of a U.S. recession stoked worries over demand, though losses varied widely.
Commodities had already taken a hit in recent weeks, weighed down by a sluggish economy in top buyer China, with crude oil down around 5% last week, copper hitting a four-month low on the London Metal Exchange, and corn near its weakest since 2020.
“Commodities have seen selling pressure throughout the last month, basically meaning the momentum crash currently hitting stocks has to a certain degree already occurred,” Saxo Bank analyst Ole Hansen said.
Crude oil dropped around 1% on Monday in volatile trade, less than losses on major equity indexes as U.S. recession fears and possible implications for oil demand were somewhat mitigated by price support from rising tensions in the Middle East.
“Geopolitics, for example anxiety about Middle East supply disruption, and the growing belief that OPEC will not unwind voluntary (output) cuts, provides relative support for oil as opposed to equities,” PVM analyst Tamas Varga told Reuters.
Israel and the U.S. are bracing for a serious escalation in the Middle East after Iran and its allies Hamas and Hezbollah pledged to retaliate against Israel for last week’s killings of Hamas’s leader and a top Hezbollah military commander.
However, even with the latest selloff, oil has still underperformed many major stock exchanges in 2024. Since the beginning of the year the Nasdaq 100 has risen nearly 8% and the FTSE over 3%, while Brent crude is up just 0.5%.
Copper prices CMCU3 tumbled over 3% to 4-1/2 month lows as a deteriorating demand outlook in China and the United States, the world’s two largest economies, triggered a sell-off of the metal used in power and construction.
Gold XAU= was last down around 2%.
“Gold on a relative basis does better than other metals when people are worried about recession. But it will also come under pressure because people sell it to meet their margins in other markets,” Liberum analyst Tom Price said.
European gas, power and carbon contracts also fell.
European benchmark gas for the month ahead TRGBNBPMU4 sank around 4% from the previous session, under pressure from panic selling in line with the wider sell-off as well as other factors, according to one trader. NG/EU
High Norwegian output, greater LNG output and seasonally low demand because of warmer weather are among factors holding down gas prices, though concerns of supply shocks from Middle East tensions are providing a floor to prices.
“Prices are somewhat stabilized by fears of short-term supply disruptions in connection with a possible retaliation by Hezbollah and Iran on Israel,” Rystad Energy analyst Christoph Halser said.
EU carbon permit prices for delivery in December CFI2Zc1 were down almost 3.5% on “fears that an economic downturn will limit activity”, according to Henry Lush, EU carbon analyst at consultancy Veyt.
In agricultural markets, products including wheat wv1, corn cv1, soybeans Sv1 and sugar SBc1 had recovered some losses from earlier in the session. With the exception of wheat, which is down around 1%, the other products were trading a touch higher on the day.
SOFT OR HARD LANDING?
Guy Wolf, global head of market analytics at Marex, said softer U.S. data could help markets by making it easier for central banks to cut interest rates, although a hard landing for economies would ultimately hit demand.
“If you look at the Chinese data, domestically it is soft and exports are struck, so if the rest of the world weakens … it is clearly going to be negative for base metals,” he said.
Still, he said declines for metals should be limited by supply disruptions and demand from new energy sectors.
Growth in China’s services activity accelerated in July, helped by new orders, although momentum in overseas demand eased to its slowest in 11 months, a private sector survey showed.
China should ramp up its fiscal stimulus to spur economic growth and set a firm inflation target to prevent the country falling into a “low inflation trap”, a central bank policy adviser said in remarks seen on Friday.
(Reporting by Naveen Thukral, Florence Tan and Mai Nguyen in Singapore, Robert Harvey, Nigel Hunt, Pratima Desai, Nina Chestney, Marwa Rashad and Paul Carsten in London; Editing by Mark Potter and David Evans)