After 10 o’clock in trading last Friday night, the commodity market ushered in a rapid oversold rebound. The commodity index rebounded by 2% within one hour. This was the most explosive rebound in the past two weeks. Nonetheless, the bull market in commodities seems to have come to an end. In the past two weeks, concerns about a global economic recession have detonated market sentiment, and investors have been highly consistent in their bearish expectations. In the past week, many varieties experienced extreme prices with single-day declines of more than 10%. In the end, the commodity market fell sharply for the second consecutive week, with the weekly declines of nearly 20 main contracts approaching or exceeding 10%. Although the tight supply and demand situation in the oil market has kept the monthly difference results and forward curves of oil prices strong, the absolute price of crude oil has still fallen sharply against the backdrop of a sharp decline in commodities across the board. After two consecutive weeks of sharp declines, the original bull market pattern has obviously loosened. Especially in an atmosphere where more and more commodities have entered a technical bear market, how to choose the future of the crude oil market has also become a focus of the current market.
This round of decline in oil prices has dropped by US$17/barrel from the high. However, the monthly spread structure of crude oil has been extremely resilient during the plunge, and the discount in the spot market has also remained strong. This means that the fundamentals of crude oil itself have sharply diverged from the impact of macro risks. Investors will inevitably have completely different views based on different logics when evaluating oil prices. From a macro perspective, concerns about economic recession and tightening liquidity will continue to squeeze out risky asset bubbles. In the medium to long term, a downward shift in the price center of gravity of the commodity market is a natural choice, and more and more varieties have entered a technical bear market. In the medium to long term, it will be difficult for oil prices to escape this trend. From the perspective of current supply and demand in the crude oil market, under the tight supply situation, oil prices themselves do not have a strong downward drive. Therefore, in the face of the rapid decline caused by macroeconomic shocks, oil prices themselves have a relatively obvious need to repair, and they have been waiting for the market to There is a window for sentiment to stabilize, but in an emotional market atmosphere, controlling the rhythm is quite challenging for any investor.
Global recession fears exert huge power
Recently, investors have focused on concerns about the impact of the global economic recession on demand. This sentiment has continued to strengthen itself as commodity prices have fallen. The short advantage has been too strong, triggering an accelerated decline. Some varieties in the non-ferrous and oil sectors have fallen short. The decline of more than 20% in two weeks has also allowed investors to see the huge power of emotional market conditions.
While U.S. Democrats warned of recession risks, Federal Reserve Chairman Jerome Powell said the central bank’s commitment to fighting inflation is “unconditional.” This has led investors to consider that the Federal Reserve’s aggressive interest rate hikes to suppress inflation may lead to a recession in the U.S. economy. “The overheating of our labor market is somewhat unsustainable and we are now nowhere near the inflation target. We really need to restore price stability and get inflation back to 2 per cent because if we don’t do that, we won’t be able to achieve sustainable full employment. “Powell said in testimony before the U.S. House Financial Services Committee on Thursday.
May’s inflation data was extremely embarrassing for the Federal Reserve. The outside world expressed dissatisfaction with the Fed’s monetary policy mistakes, believing that it was too loose and lasted too long. Now Powell and his colleagues have begun to significantly raise interest rates to curb inflation, with a total of 1.5 interest rate hikes so far this year. percentage points, and officials expect another cumulative 175 basis points of interest rate hikes in 2022. Such a shift has sent shockwaves through financial markets, with investors worried the move could trigger a recession. Powell told lawmakers that a recession is “certainly possible” but not something the Fed wants to see, and he doesn’t believe a recession is necessary for inflation to fall to its 2% target.
However, economic data from the United States and the euro zone on Thursday showed that a recession appears to be difficult to avoid. The preliminary value of the Markit Manufacturing PMI in the United States in June was recorded at 52.4, a 23-month low. Based on German PMI data for June, S&P believes that the German economy has lost almost all the upward momentum it gained since the easing of epidemic restrictions, and euro zone economic growth is showing signs of faltering due to the impetus of pent-up demand brought by the epidemic. has weakened, offset by a hit to the cost of living and a decline in business and consumer confidence. The euro zone’s economic slowdown in June was the most sudden since the 2008 global financial crisis.
The final value of the University of Michigan’s consumer confidence index in the United States in June was 50, a record low. Joanne Hsu, director of the University of Michigan Consumer Survey, said the final value for June confirmed the decline in consumer sentiment in early June. It was 0.2 index points lower than the initial value and 14.4% lower than May. It was the lowest reading on record. Significant declines were seen among consumers across income, age, education, geography, political affiliation, stock ownership and home ownership status. About 79% of consumers expect business conditions to be poor in the coming year, and inflation, the highest since 2009, remains consumers’ top concern; 47% of consumers blame inflation for eroding their living standards, with only That’s slightly lower than the all-time high reached during the economic crisis of 2008. The median expected inflation rate in June was 5.3%, little changed from mid-month or the previous five months. In contrast, long-term expectations range fromc=”” data-preview-group=”1″ src=”http://pic.168tex.com/Upload/News/image/2022/06/27/20220627091945_2456.png” />
As the so-called “duck prophet comes when spring water warms up”, hedge funds quickly reduced their net long positions in crude oil when oil prices plummeted. Speculative net long positions in Brent crude oil futures decreased by 30,418 lots last week to 208,918 lots. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that as of the week of June 21, the net long position of WTI crude oil decreased by 31,972 lots to 234,012 lots, of which long positions fell by 28,777 lots to 261,295 lots, the lowest record in more than two years, and short positions fell by 28,777 lots to 261,295 lots. Positions increased by 3,195 lots to 27,283 lots, a new high in the past two months.
After this stormy decline since June, the commodity market has cooled down significantly. In the context of controlling inflation, the global economy is facing tremendous pressure. As liquidity tightening progresses, from a mid- to long-term perspective, the upward momentum of commodity prices will fade, and more and more varieties will gradually enter a downward trend. Considering the possibility of high stagflation, In this process, the price is expected to fluctuate. Especially for products like crude oil, although there is a high probability that subsequent supply and demand deductions will gradually put pressure on oil prices, the current low inventory level and the tight situation of refined oil products in Europe and the United States during the peak consumption season in the northern hemisphere are difficult to effectively alleviate, which means that the current oil price does not have the capacity to sustain a sustained surge. The conditions for a decline can be seen from the recent changes in the monthly spread structure. Oil prices will maintain a high oscillation pattern for some time to come until the current situation changes significantly.
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