“What goes up, must come down, spinning wheel gotta go round…”
If you had to pay royalties on songs that get stuck in your head, I’d probably need to cut Blood, Sweat and Tears a hefty cheque by now. Following the commodity markets can often feel like riding the painted pony from their 1960s hit.
Crude oil
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West Texas Intermediate has lost roughly 15 per cent over the past two months. A move below the 200-day moving average on Nov. 16 set the stage for even more losses from a chart standpoint.
Stock buildups in the United States and concerns over an economic slowdown in Asia contributed to the declines, although expectations for continued production cutbacks from OPEC+ and other oil exporting nations may limit further losses. Analysts’ opinions are divided on whether crude oil will fall to US$60 per barrel or go back to US$100.
Oilseeds
Where crude oil goes should have influence on world vegetable oil markets. Canola and soyoil futures also lost ground over the past two months. January canola did manage to stick its head back above the psychological $700 per tonne level in mid-November, but large speculative shorts proved to be an anchor threatening to pull values below that point as of Nov. 17.
Grains
Corn futures fell to their lowest level in nearly three years during the week, as ample U.S. stocks and improving South American weather prospects weighed on prices. Winter wheat futures also hit contract lows in some of the deferred months, while a record-large speculative short position in Minneapolis spring wheat is overhanging that market.
Interest rates
Central banks trying to rein in inflation have been busy raising interest rates. The Bank of Canada rose from an overnight rate of only 0.75 per cent at the beginning of 2022 to the current level of five per cent.
The U.S. Federal Reserve had interest rates near zero at the start of 2022 and moved to the current level of 5.25 to 5.50 per cent in less than two years.
Consumers are feeling the brunt of those high rates, and many economists are warning that softening economic outlooks could lead to sharp rate cuts over the next year. UBS, the Swiss investment bank, published an outlook on the U.S. economy predicting disinflation and rising unemployment would weaken the U.S. economy and trigger rate cuts.
In Canada, while the Bank of Canada has yet to rule out additional hikes, economists also expect to see cuts over the next year. It’s said that it can take up to two years for the full impact of interest rate hikes to be felt by the economy.
A five per cent rate through 2024 would put Canada in a deep recession, which the central bank obviously wants to avoid.
It would like to keep all its troubles by the riverside — but where the spinning wheel turns from here remains to be seen.
