Commodities Not Showing Any Inflation

I have noticed a certain amount of commodities have done nothing for most of 2012. A lot of commodities have just flatlined while some are actually hitting new lows.  This has to be a big precursor for global growth. If growth was globally growing strong, we would have seen commodities move up higher. However we are not and the “mixed signals’ commodities are giving fit exactly into the notion of slow global growth in the short run.

 

The Charts

(Note: All Weekly chats unless otherwise noted)

First lets take a look at the Thomson Reuters/Jefferies CRB Index, which is the index for commodities. After topping out about a year ago, commodities (as a whole) have sold off. While there was a constructive double bottom put in at the 295 area, the bounce has looked fairly weak.

$CRB  Commodity Index

 

As for specific commodities, some are hitting new lows or trading near them.

Cotton ($CT_F, $BAL)

I have been fairly bearish on cotton for a long time ever since it sold off hard in mid-2011. This is a classic looking “bubble” trade where there is a strong run followed by a “round trip”.  While not at the low, it looks bearish as long as it is below that $100 level.

 

 

Coffee ($KC_F, $JO)

Here’s another ‘soft’ commodity that is hitting lows. After putting in a slightly deformed Head & Shoulders patterns in the middle of last year, its sold off since. In fact, its at the lowest level since the first week of October 2010 (which is before QE2 started). Looks good for all you coffee drinkers.

 

 

Most of the other “softs” have done nothing over the past year. Take a look at Lumber ($LO_F), Orange Juice ($OJ_F), Cocoa ($CC_F), and Sugar ($SB_F); they have all basically traded in a wide range over the past few months and are well off their 2011 highs. While the “soybean trinity” has rallied hard this year, the other grains have done nothing as well. Wheat ($ZW_F), Corn ($ZC_F $CORN), Rice ($ZR_F), and Oats ($ZO_F) have all remained flat over the past few months.

Other major commodities are also hinting at slow growth.

Copper ($HG_F, $JJC)

While Copper is well off its 2011 lows of about $3.00, it is struggling to get above that all important $4.00 level. In no way is it hinting at negative growth, however, since we cannot get above this $4.00 level, copper may be telling us that growth is going to be very modest.

 

 

Final $MACRO Thoughts

Despite all the easing by Central Banks all over the world, a lot of commodities are barely holding up and some are even selling off. Inflation is usually the worry, however with high oil prices (which is deflationary as it creates demand destruction) and sluggish growth, I would worry more about deflation at this point. I still think the US avoids a recession in 2012 (2013 is a different story…), however with China slowing and Europe in a recession, it is hard to be bullish on global growth here.

 

 

 

 

 

 

 

 

 

 

 

 

Note: PPI is at the lowest growth levels since early 2010.

 

I think that is why we are seeing such abnormally low yields still (despite the recent “spike”). People are still worried about Europe and China’s slowing (especially more now after warning from $BHP) and are considered of a return OF money instead of a return ON money.

While all these signs could be ominous signs of a “sell in may” signal, I still think the rally has some juice. Technically the market is still looking good and many are still waiting for the “buy the dip” opportunity despite QE being off (for now).

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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