Commodities: Time to buy when others are selling?

As outflows increase, oil fundamentals are strengthening

As I travel around the country to meet with institutional clients, I often hear this question: “What is everyone selling? Because that’s something I’m really interested in buying.” These are clients who have the confidence and experience to contradict the herd mentality that causes many investors to chase market returns (which often results in buying near market tops while selling near market bottoms).

That question is my cue to start talking about commodities. 

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Opportunities emerge as the ‘Trump trade’ unwinds

As the future of new policies becomes murky, investors seek opportunities that are grounded in today’s realities

The “Trump trade” has officially unwound in the global currency markets, reflecting investors’ fading confidence in Washington’s ability to pass growth-inducing legislation. After experiencing a post-election boost on the back of President Donald Trump’s victory late last year, the US dollar erased almost all of its gains as of May 17.1

While this week’s drop triggered dramatic headlines, my team believes that falling enthusiasm is creating an attractive entry point for investment opportunities based on real trends that we’re seeing today — not on inflated hopes for new policies.

The potential effects of a weaker dollar

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Commodities: Staying focused on the fundamentals

Despite recent market disruptions, a decline in global crude oil inventories could bode well for commodity investors

2017 has been challenging for commodities, which are down more than 9% on the year as of May 5, 2017.1 In the first week of May, commodity markets experienced heightened volatility in the wake of rising US crude oil output and expectations of a recovery in Libyan production. Copper and iron ore prices have also retreated on renewed concerns about Chinese demand.

Supply is critical to energy commodities

However, commodity investors need to look at

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Fed hikes short-term rates, citing expanding economic activity

Rate hike is third in 15 months, two more likely in 2017

The Federal Reserve raised interest rates today by 0.25% — the third such rate hike in the past 15 months. The Fed’s decision was largely priced into the financial markets, which assigned a 98% probability to the rate increase in the days leading up to today’s announcement.1 In keeping with its two previous rate hikes, the Fed explained today’s decision as an appropriate response to an economy expanding at a moderate pace and a labor market experiencing solid jobs gains.

Rate hike seems unlikely to derail US economic growth

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Expectations for a strong US dollar in 2017 may be losing currency

The degree of interest rate divergence between US, international markets could determine US dollar’s direction

Bloom Jason_sm_150dpi_RGBThe US dollar moved sharply higher against the world’s major currencies in 2014 and 2015 — creating a strong dollar environment in the truest sense of the term. US investors experienced the results of a stronger dollar in the form of tepid economic and profit growth, and muted inflation.

Despite persistent media headlines to the contrary, the currency backdrop has been more nuanced since early 2016. Indeed, the US dollar, as measured by the Bloomberg Dollar Index, traded in negative territory from mid-February through mid-November 2016, not reaching positive territory until after the November US elections.1

Limited upside for US dollar in 2017?

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