DJ Analysts Mixed On
Global Commodities Prices For 2H 2008
12:18 PM, July 17, 2008
By Tom Sellen Of DOW JONES
NEWSWIRES
Agriculture Online
may have seen their highs for the
year and heavy speculative selling pressuring
some markets, not all analysts are
convinced the bull run is over.
A note earlier this
week from Brian Belski,
Merrill Lynch (MER), said the commodity cycle may have
peaked already in 2008,
and prices may be heading south as
global demand weakens.
However, strong
fundamentals in key markets, inflation worries and equity
weakness just may continue driving
commodity prices higher as investors seek
the best places to park their
money.
"If you think
commodities have seen their highs for the year then you think
inflation is not an issue, you
think that third and fourth-quarter CPI
(Consumer Price Index) won't be a big deal at all, you think
the housing market
has bottomed out and we're on the
road to recovery and you think banks are
starting to lend again," said
Zachary Oxman, senior trader at Wisdom Financial.
Sell-offs in
commodities are typical and can often last a week or
two as
trending markets experience
disruptions, but the short-equity versus
long-commodity trade remains
intact, he said.
Oxman
said it is "very realistic" to think gold futures will hit $1,000 as
investors seek safety in times of
rising inflation and as a hedge against
global equity weakness.
It is precisely the
global stock markets that have some analysts the most
concerned on worries the weakness
is beginning to catch up to commodities and
will eventually slow demand for
material goods.
"If the
commodity situation is truly and supply and demand, stock market
performance and the global economic
growth outlook are certainly suggesting
that some demand destruction is on
its way," the Merrill Lynch research note
said.
While the Dow Jones
industrial average rallied 276.74 points Wednesday, led
by the financial sector amid new
rules limiting short selling, worries about
inflation spiking to a 17-year
high, the housing crisis and banking troubles
may continue to be drags on
equities, one analyst said.
On Wednesday, the
U.S. Labor Department said its June Consumer Price
Index
climbed 1.1% - its biggest rise
since 1991 and evidence that inflation is a
burgeoning problem amid sluggish
economic growth. The core index, which strips
out food and energy prices, was
still up 0.3% and grew faster than in the
previous two months.
Agreeing with
Merrill Lynch's weaker commodity outlook is Bart Melek,
global
commodity strategist with BMO
Capital Markets, who sees commodities slipping as
global contagion slows demand.
"You're seeing
the global economy slowing down...and the idea that it will
have no impact has been undermined
recently especially since some of the
Chinese numbers, which are still extremely good, are coming
out a little bit
below expectations," said Melek.
The International
Monetary Fund on Thursday raised its 2008 economic growth
forecast for
acknowledged that fears of global
financial market unrest have been overtaken
by the larger concerns of high
crude oil and food prices. The IMF expects the
against the backdrop of rising
commodity prices and tight credit conditions.
However, the IMF
does expect 2009
the housing market will hit bottom
in the next few quarters.
While Melek's outlook is lower, he sees gold as the bright spot
in the
commodity world and wouldn't be
surprised to see "spikes" in markets that are
influenced by global events and as
the U.S. dollar continues to weaken.
Using the current
hurricane season as an example, news of a storm pushing
into the
which would likely lift the entire
commodity complex, he explained.
In addition, traders
shorting the greenback and buying commodities may also
help to lift prices. In fact, Melek still looks for gold futures to trade above
$1,000 in the next few weeks or months, as inflationary
pressures heighten and
traders seek safer investments.
"We're quite
positive on gold," he said.
At 11:40 a.m. EDT,
gold futures are up $15.30 an ounce to $978.00 on the
Comex division of the New York
Mercantile Exchange, lifted by business sector
weakness as reported in the
Philadelphia Fed business survey and early strength
in crude.
Crude oil futures
have turned weak, however, with the August futures down 73
cents at $133.80 a barrel on Nymex, after hitting a high of $136.75 earlier in
the session.
A steady to weak
U.S. dollar has sparked buying in some commodities, but
steep losses in Chicago Board of
Trade corn and soybean futures and mostly
lower soft commodities are taking
their toll in the major indexes. One CBOT
trader described the selling in
grains as "a big sucking sound going on," the
money running out of commodities.
As a consequence,
the Dow Jones-AIG Commodity Index, which hit a six-week low
Thursday, is down 3.535 to 218.628 and the Reuters/Jefferies
Commodity Research
Bureau Index, which fell to a five-week low, is down 5.19 to
439.38.
Still, Oxman believes commodities will continue to head higher,
despite some
notions to the contrary.
"I think
anybody that says the commodities rally is over is crazy and is
missing yet another great
opportunity to either add to your positions or start
to trade," he said.
-By Tom Sellen, Dow Jones Newswires
agriculture.com