Free Trial

Commodities Outperforming Equities As Inflationary Pressures Intensify

COMMODITIES
  • In the past cycle, the constant liquidity injections from central banks to support the economy have led to a significant outperformance of US equities relative to commodities.
  • However, an increasing amount of investors have turned bullish on commodities in recent months as inflationary pressures keep intensifying and the constant unconventional monetary policy interventions from the Fed to protect the global economy from falling into a deflationary depression are likely to significantly weaken the US Dollar in the medium to long run.
  • The chart below shows the dynamics of the ratio of US equities (SP500) relative to commodities (CRY(B) index) in the past 100 years.
  • We can notice that after diverging significantly in the past 10 years from its LT average, commodities have been outperforming equities in the past year.
  • Hence, if we assume that the ratio follows a mean-reversion process in the long run, commodities should continue to outperform US equities for a while.

Source: Deutsche Bank

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.