Commodities Roar Back

Risky assets suffered large losses last week with EM stocks taking the biggest beating
Fixed income also experienced losses as interest rates globally spiked up
Only Commodities as an asset class experienced positive returns
Within equities, US large cap lost the least as Value strategies actually showed slight gains
A 60/40 mix of purely US assets out-performed a global version and remains vastly ahead YTD
In general, higher risk multi-asset strategies under-performed last week but remain ahead YTD

Currencies:

The USD regained lost strength last week
The Brazilian Real spiked up as pro-business President is expected to be elected
EM currencies continue getting pounded with the Rand taking the biggest beating as SA enters a recession
As central banks normalize their policies expect enhanced volatility as market participants balance interest rate differentials with economic growth dynamics
The Yuan has stabilized after a period of depreciation – authorities have refrained so far from using a weaker currency to fight tariffs

Best week this year for commodity prices – potentially a wakeup call as investor update their inflationary expectations
Sugar and coffee prices were up the most boosted by the appreciation of the Brazilian Real
Grain prices recovered from previous week lows but until tariffs with China are not agreed to we should expect to see huge volatility
Oil keeps marching higher as economic growth remains robust and sanctions against Iran take a bite out of supplies
Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend especially in light of higher short-term interest rates

Risky assets keep outperforming YTD but last week was a down week across the board except for commodities
The critical variable to watch for this week is the US 10 Year Note – another spike up and risky assets will be under great stress
Our view is that markets will calm down and that risky assets will recover this week
We are also watching out for any strong jump in inflationary expectations
- An important economic number to watch this week is US CPI on Thursday
EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
Value dramatically outperformed Growth last week and we are seeing faint signs of industry rotation toward value sectors
- The Momentum trade while still ahead YTD is quickly losing strength
What will make investors price risk more in line with history?
- A growth scare in the US, maybe? A real inflation scare?
The biggest issue for investors is lack of a reasonable hedge to equity risk

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Eric J. Weigel

Global Focus Capital LLC

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