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How Major Economic Events Affect Sentiments across Asset Classes

PART:
1 2 3 4 5 6 7 8 9 10
Part 9
How Major Economic Events Affect Sentiments across Asset Classes PART 9 OF 10

Commodity Index: Analyzing the Rough Drive

Commodity index

After the 2008 financial crisis, the overall commodity index (DBC) was trading on a passive note. From December 1, 2008, to July 11, 2016, the CTRB Bloomberg Commodity Index fell by 49.7%. The agriculture commodity index fell by 51.1% during the same period.

The 2008 credit crisis created panic in the world economy (VEU) (VTI). All major indexes showed massive sell-offs. However, commodities lost their significance when major consumer China (MCHI) began to see an economic slowdown.

Commodity Index: Analyzing the Rough Drive

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What led to the commodity downturn?

The overall commodity downturn was driven by the slowdown in China that started in 2011. China’s real estate segment saw a big fall in profits.

China’s (FXI) (ASHR) domestic consumption is made up of ~50% industrial metals such as copper and iron ore (SLX). The fall in demand for industrial metals has been a leading indicator of the slowdown in the country’s economic activity.

How oil prices finally ended their rally

Crude oil (BNO) (UCO) prices started to fall on June 20, 2014, when Saudi Arabia, the biggest producer among OPEC’s (Organization of the Petroleum Exporting Countries) members, decided not to cut its production limit. The decision was aimed at wiping out US shale oil producers financially. Between June 20, 2014, and July 12, 2016, crude oil fell by 56.3%.

Agricultural commodity index

The recent fall in the agricultural commodity index can be correlated to the rise in the US dollar (UUP) and the supply glut. Even El Niño’s effects couldn’t boost the agricultural commodity index, as high supply was wiping out the chances of a rise in prices.

According to a World Bank report, El Niño–related issues reduced the productions of a few commodities such as rice and palm oil, but these reductions weren’t sufficient to boost the agricultural index (DBA).

In the next part of this series, we’ll analyze the performance of the US Dollar Index during 2006–2016.

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