Global recession and commodity class

Recession and demand… Copper is headed for a steep loss as fears of a global recession increase, adversely affecting the demand outlook and lowering commodities from oil to metals. All base metals are in a bearish momentum, and we think that some economic activity data, which raised concerns about a sudden cooling in manufacturing and demand, could also contribute to this decline.

Cooling down in the economy… The hawkish comments of the Fed in the last days added the factors stemming from policy tightening to the global recession concerns. Therefore, it is thought that the probability of a global recession phenomenon has increased compared to the past. In his Senate presentation, Powell reiterated that his commitment to lower inflation was “unconditional.” As a result, expectations for the Fed’s aggressive rate hikes to cool the economy have also strengthened. The weakening of the demand for consumer goods also brings a lowering effect on the prices of industrial metals, which have an important place in electronic product components.

Comparison of copper prices and gold / copper ratio… Source: Bloomberg

Gold / copper ratio… The gold/copper ratio is calculated by dividing the market price of gold by the market price of copper. Copper is an industrial metal and high demand indicates that the economy is in a growth trend. If copper tends to appreciate, the rate will decrease and risk appetite will be high; In the opposite case, the higher premium of gold than copper causes the ration to rise, which indicates that the global investor’s appetite for risk taking is low. Therefore, the rise in the gold-copper ratio can be seen as a sign of falling expectations for future economic growth.

Conclusion? It is thought that the rapid increase in interest rates by the Fed will slow the pace of the global economy considerably due to the current economic cyclicality, and the recession possibilities are evaluated more strongly. In cyclical factors, before this, there was an equation formed with supply problems and geopolitical risks. The Russian war and the Chinese coronavirus measures also had an impact on the development of the problems in the previous period. Commodity prices, especially in the metal group, are also decreasing due to the increasing fears of global economic recession due to the tightening of monetary policy by central banks.

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