In this publication: 2019 was a good year for the CRB because of higher energy and gold prices. This is despite weaker global growth and global trade. For 2020 we expect only modest upside in the CRB index because of: a stabilisation or slight improvement in the outlook for the global economy, no serious risk-off periods, a somewhat weaker dollar, and accommodative monetary policy by the Fed and ECB. Still, supply concerns could cause temporary spikes in oil, palladium, nickel, grains and softs prices.200124-Commodity-outlook.pdf (298 KB)
Last year was a good year for the CRB commodity price index, with the index rising 9%. This rise was against the background of conflicting drivers such as: lower global trade, concerns about the global economy, trade tensions, weak car sales, more extreme weather conditions, a stronger dollar and monetary policy easing by the Fed and the ECB. The rise in the CRB was mainly the result of higher oil prices and higher gold prices, while most industrial metals prices were more affected by a weaker global economy and weaker trade. Gold prices rose because of monetary policy easing, more negative yielding debt and geopolitical tensions. Oil prices were supported by OPEC policy and the expected US-China trade agreement.
As with any other asset class, commodity prices have numerous drivers and it is the interplay between these drivers that determines the direction of prices. For a start, most commodities are driven by the state of the global economy. After a year of continuously lower expectations about the state of the global economy, 2020 will likely bring some stabilisation, and we expect global car sales to recover somewhat. We still expect a weak eurozone economy, but a stabilisation is likely. Furthermore, we expect some more constructive vibes coming from the Chinese economy (see China Watch by Arjen van Dijkhuizen). China is the major consumer of commodities, so a somewhat better Chinese economy is supporting the outlook for commodities. However, our US economist thinks that the US economy will slow further in the coming months, and our growth forecast is below consensus for the US. Taken together, though, the economic outlook and the demand side for commodities (especially industrial metals) looks somewhat better than in 2019.
Second, we are less pessimistic on the outlook for global trade following the Phase 1 trade deal between the US and China. From time to time there will be hawkish rhetoric, but we don’t expect a near-term escalation of trade tensions. This should help investor sentiment somewhat and support the more cyclical commodities. Third, a weaker dollar in our forecast horizon and accommodative monetary policy by the Fed and the ECB will also support commodities. The CRB index tends to rise if the dollar falls. Moreover, lower financing costs will support the industry as well make commodities from an investment more attractive. Commodities don’t pay income in the form of dividend and coupon. More negative-yielding bonds make commodities as an investment more attractive. So, demand for commodities could be a bit higher this year. We don’t expect major supply disruptions, but there is always a risk that these occur.