The Rout in Commodities Can No Longer Be Ignored

Plunge, tumble and rout are overused by the financial media to describe a market in decline, but such superlatives would not be out of place to describe what’s happening to commodities. The Bloomberg Commodity Index of 25 raw materials ranging from oil to copper to cattle dropped as much as 2.80 percent on Wednesday, the most since 2014, before closing at its lowest level since December. That brought the gauge’s decline to 8.88 percent from this year’s peak in late May.

If one thinks of raw materials as a sort of early warning system — copper is frequently called the metal with an economics Ph.D. because it often tracks the health of the world economy — then commodities are sending an incredibly distressing signal. Their performance is far worse than the relatively modest 1.05 percent drop in the MSCI All Country World Index of equities over the same period, which probably speaks more to the widespread belief among stock investors that leading central banks will stop talking about monetary tightening and continue flooding the world with cash at the first sign that the budding trade war between not only the U.S and China but also between the U.S. and its allies is causing real trouble. “There is growing concern among market participants that the trade war will affect the real economy and put the brakes on global economic growth,” Commerzbank analysts, including Carsten Fritsch, said in their daily report.