Global Commodities Strategy
We are holding to our Brent and WTI price forecasts for 2014. WTI should remain fairly stable and average USD99/bbl, while improving supply will see Brent weaken to average USD105/bbl for the year.
Economic stimulus measures by the Chinese government pose short-term upside risks for metals prices. However, we maintain our bearish multi-quarter outlook on both Chinese economic growth and prices for key metals such as copper and iron ore ( see 'Piecemeal Stimulus Does Not Alter Core View', April 3).
Spot gold looks strong on a short-term basis as minutes from the US Federal Reserve's last meeting, released April 9, have modestly pushed back market expectations for timing of US monetary tightening. We expect renewed declines by gold towards USD1,200/oz in H214 as the US economy continues to gather steam.
This week we closed our bullish and bearish views on LIFFE cocoa and ICE coffee, respectively. Our cocoa view finished up by 1.8% and our coffee view down by 9.5%.
We continue to expect grain prices to average below spot levels in 2013, but see growing upside risks for wheat and soybean prices due to low US stocks for soybeans and deteriorating soil conditions for wheat.
Although we expect commodity prices to continue underperforming developed market equities over the coming quarters, we do not rule out a further comeback by commodities in the near term. The two-year uptrend in the MSCI World / CRB Commodity Index ratio has stuttered in 2014 as developed market equities have struggled to convincingly break to new highs and commodity markets including grains, softs and energy have rebounded from Q413 lows. We will be watching for a break lower in the ratio as a signal that additional tailwinds for commodity prices could be forthcoming in the Q214. A boost for metal prices could stem from a larger Chinese economic stimulus than we currently anticipate, while grain prices could benefit from a more severe tightening of supply ahead of the Q314 northern hemisphere harvests than is currently being priced in.
|Further Pullback Ahead?|
|Ratio: MSCI World Equity Index / CRB Commodities Index|