Commodity Prices - On a Knife's Edge
The prices of industrial metals find themselves at crucial levels as indicated by the Economist Metals Price Index in U.S. dollar - the latest number is my estimate. The upward trend since the market bottomed in the first quarter of last year is currently being challenged.
Sources: I-Net Bridge; Plexus Asset Management.
The U.S. dollar prices of industrial metals are heavily influenced by the US$/euro exchange rate, but the drop in the Metals Index significantly outweighed that of the strength of the U.S. dollar. The drop in the Metals Index resulted in a break in the uptrend of the Index in euro.
Sources: I-Net Bridge; Plexus Asset Management.
The marked drop in metal prices, especially those of aluminium and nickel, was also echoed by very weak steel and stainless steel prices.
Sources: I-Net Bridge; Plexus Asset Management.
Sources: I-Net Bridge; Plexus Asset Management.
Bulk shipping rates such as the Baltic Dry Index are in a free fall, while Chinese containerised freight indices continue to head south, with downward momentum on the U.S. West Coast route accelerating.
Sources: I-Net Bridge; Plexus Asset Management.
Sources: chineseshipping.com; Plexus Asset Management.
In my view the decline in non-U.S. dollar metal prices together with declines in bulk and containerised shipping rates are proof of a sudden weakening of global demand. The manufacturing PMIs for November (to be released next week) are likely to disappoint on the downside. I am still very concerned about how markets will react when China's non-manufacturing PMI is released by the end of next week. If the seasonal trend over the past two years holds true the number is likely to indicate contraction in China's services sectors.
I therefore expect volatility to increase in most financial markets over the next two weeks. Regarding short-term market movements, a possible scenario is as follows.
Stronger markets: U.S. dollar; yen; Swiss franc; mature-market bonds.
Weaker markets: industrial metals; silver; platinum; emerging-market equities; mature-market equities; commodity-related and emerging-market currencies; euro; British pound
Neutral markets: gold bullion
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
Copyright © 2008-2012 Dr Prieur du Plessis
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