Don't Buy The Dip In Commodities, Prices Heading Lower: Barclays
(Kitco News)- Investors should not buy the dip in the commodity sector asprice performance is skewed to the downside for the rest of the year, saidBarclays Commodities Research.
The main drivers keeping commodities prices at bay aredeleveraging in China and weakening synchronous global growth, Barclays said ina recent research report.
“The commodity rally that ensued in April has stalled sincemid-May, and we are skeptical of anything close to stunning outperformance throughthe balance of the year,” analysts at Barclays said.
Commodities, as a basket, have rallied in 2018, peaking inmid-May. The Goldman Sachs Commodity Index rose 12% from January to its peak inMay, but has since fallen to its April levels and stalled.
Since February, individual commodity sectors started seeingdiverging performance, with livestock being the worst performer, down 7% on theyear, and energy being the best, up 7% year-to-date. No other sector achievedmore than 5% returns on the year.
Barclays noted that with the exception of energycommodities, the risk to the downside is growing, and investors should be waryof buying in at currently depressed levels.
“In previous editions of the Global Outlook, we havecautioned against buying the dip, and we are not changing our tune,” the reportsaid.
The continued weakness in commodities can be attributed torising protectionist policies around the world, as well as a stronger U.S. dollar, China deleveraging, and weakening macroeconomic indicators, accordingto the research.
Industrial metals, in particular, are likely to take a hitas demand from China, the world’s largest consumer of base metals, weakens.
“Copper has found temporary support from the perennial laborissue at the Escondido mine, but is likely to face headwinds as the Chineseeconomy continues to slow down and protectionist concerns mount,” analystssaid.
The only commodity sector that the British bank remainsbullish on is energy, as OPEC’s mandate of production cuts has successfullyshrunk global oil oversupply.
“The stated mandate of production cuts by OPEC and its NOPECallies was to reduce the inventory overhang in global oil markets. They havemore than achieved that target in our view,” the report said.
By David LinFor Kitco News
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