June 17, 2022
As night follows day, market sentiment shifts from bright optimism, to cloudy pessimism, and we seem to be in the midst of that transition right now.
There are four major factors weighing on the markets. These include:
1) The Russian Invasion of Ukraine.
2) The debacle in the nickel market that infected other base metals.
3) The unexpected surge of inflation.
4) The resulting spike in interest rates.
across the board, but these four factors, we believe, have turned the tide. And if we assume that these events are fundamental in nature, it necessarily follows that technical considerations are also impacted.
The statistics page lays out the losses that occurred last week and on a year-to-date basis, and it won’t be too long before we see more red in the year over year column. Also, from a technical perspective, just about every chart shows support lines already breached, or prices are on the verge of falling through – despite already low inventories being depleted further.
We say markets are ‘Coming Full Circle – Again’, because what is happening now appears to be a repeat performance of what occurred following the financial crisis. If you still have The Copper Journal monthly report, you can see that every market fell precipitously during 2008, with copper and other metals in a virtual freefall.
In an attempt to save the global economy at that time, central banks around the world poured trillions of dollars into the financial system, with commodity markets being one of the major beneficiaries of the money, as prices not only rebounded, with some markets, to include copper reaching record highs just two years later. After the highs were reached in 2011, however, most markets went into a protracted downtrend.
Fast forward to the first quarter of 2020 when the pandemic shut down the global economy, and once again central banks around the world came to the rescue. Thus, although markets fell sharply, and the expectation at the time was for continues losses, the down draft was halted, with markets not only firming up, but many went on to make new record highs. Now, however, we have the Federal Reserve not only raising interest rates, but also going from quantitative easing to quantitative tightening, as they move to reduce their bloated balance sheet.
There is another parallel here that is less obvious, but perhaps more telling. During May 2022, on a monthly average basis, the loss of value in nonferrous metals was the largest loss since October 2008. The difference now though, is that central banks are tightening rather than being accommodative.
Further, our Bull & Bear Market Study shows prices beginning to make lower highs and lower lows for the first time since the current market cycle began in 2020. The study does not forecast or predict prices, but more importantly, it alerts us to the potential change in the overall trend, or market direction.
And finally, major global equity markets are included in this week’s report, and as you can see, we are well off the highs, and at this point, we don’t see much on the horizon that is going to turn things around.