BNY Mellon: Scattered Clues
BNY Mellon: Scattered Clues
By Simon Derrick, Chief Currency Strategist
Even with the help of the yield-driven rise in USD/JPY, it’s noticeable that both AUD/JPY and CAD/JPY - normally reliable barometers of investor sentiment - have struggled over the past week.
Looking elsewhere, the Baltic Capesize Index (capesizes typically transport 170,000-180,000 tonne cargoes such as iron ore and coal) is down 85% from its August high and now stands close to the multi-decade lows hit in early 2016 (see chart below).
Meanwhile, it’s noticeable that a number of commodities are struggling. CBOT wheat futures (on a continuation chart) are down 23% from their August peak (with the sharpest declines coming over the past month) leaving prices well on the way to their 2016 lows.
Similarly, corn prices are off 10% since last summer. Even commodities that should be doing well such as oil and precious metals are struggling to hold on to the gains they had made by late February.
That this comes at a time when the Fed has been making its intentions very clear for months and when there is a growing perception that the BoJ’s program of QQE will continue on indefinitely seems particularly telling.
This is not the first time that signals such as this have emerged. By the start of July 2008, NYMEX crude was up 109% y/y while the CRB was up nearly 50% over the same period. However, elsewhere some interesting signs were emerging that all was not well in the global economy.
Marked reversals had emerged in a number of basic foodstuffs. Thai 100% B grade white rice stood 31% below its late May peak, while US wheat futures had fallen 38% from the high seen in February of that year.
Even some foodstuffs that had remained heavily in demand through the early summer began to see reversals building. By July 8, US corn futures had fallen 9% from the record high hit on June 27.
Other signs of a change were also emerging. The Baltic Capesize Index had already fallen by around 31% from its early June peak while The Daily Telegraph had highlighted talk of a marked slowdown in the shipping industry. Meanwhile, it was noticeable that gold remains mired well below the levels hit just three months earlier.
Why does this matter?
As noted before, it’s noticeable that as the FOMC program of balance sheet reduction began to pick up pace late last year, the S&P 500 began to provide a surprisingly reasonable reprise of its performance in late 2007/early 2008.
Even the timing of the January recovery fitted very closely with the patterns seen 11 years ago. Therefore the emergence of other echoes of the price action seen in 2008 seems worthy of note.
From the currency market perspective, it seems fair to say that both AUD/JPY and CAD/JPY continue to act as useful barometers of shifting sentiment and that the mood at the moment seems to be slowly turning more negative.