Since March, the price of bulk commodities has risen. From precious metals, non-ferrous metals and oil to chemicals, and then to agricultural products such as grain and pork, shipping prices have also risen rapidly in recent days. Corresponding to the equity market, the growth of related sectors is also higher. What are the reasons for the rise in commodity prices and how sustainable is it? This article attempts to explore.
What is the reason for this round of commodity price rise?
First, under the low inventory level, supply constraints bring price elasticity. On the supply side, in the context of carbon neutrality, the upstream industry has gradually reduced capital expenditure in recent years, which restricts the current capacity. After several years of resource goods destocking, some bulk commodity inventories have been at historic lows. On the demand side, the recovery of the global manufacturing industry, the growth of China's power investment and the exchange of old for new consumer goods are important supports for the price of non-ferrous commodities. In March, the global manufacturing PMI rose significantly compared with February, returning to the expansion range, ending the contraction of 17 consecutive months. At the same time, China and the United States opened the resonance replenishment, which corresponds to the strong export of China; In March, China's infrastructure investment in electricity, fuel and water increased at a rate of 29.1%. In April, it fell slightly but still maintained a high growth rate of more than 25%. The high increase in electricity investment has driven the demand for copper cables and wires. Supply constraints and the expected recovery of demand for some commodities, the gap between supply and demand has brought high elasticity to prices.
The second is the revaluation of dollar denominated goods due to the impairment of dollar credit. Under the traditional analysis framework, the real interest rate of gold and the US dollar is negatively correlated, and the real interest rate determines the strength of the US dollar. Therefore, it is generally believed that gold and the US dollar are negatively correlated. The recent simultaneous rise of the US dollar and gold has undoubtedly overturned the perception under the traditional framework. A reasonable explanation is that the US dollar credit has been damaged: after the outbreak of the Russian Ukrainian conflict, the US sanctions to freeze Russian dollar assets have shaken the US dollar credit. Deglobalization has also become a catalyst for the collapse of the US dollar hegemony, and the US fiscal monetization has increasingly weakened the long-term credit of the US dollar. After the epidemic, the United States stimulated the economy by increasing the scale of debt issuance and increasing fiscal expenditure, so that demand remained resilient in a high interest rate environment and the dollar index strengthened. The consequence of this is that the debt burden of the United States continues to increase, and interest rates remain high for a long time, which also increases interest expenses. With the high US fiscal deficit rate, the central banks of various countries increased their allocation of gold to realize de dollarization, of which China's central bank has increased its holdings of gold for 18 consecutive months.
The credit of the US dollar is damaged, and the decrease in the intrinsic value will cause the revaluation of goods denominated in US dollars.
In the medium and long term, the interest rate reduction trend of US dollar interest rate is still certain. The expected weakening of the US dollar index and the reduction of the intrinsic value of the US dollar have accelerated the de dollarization of commodities.
The commodity price is the anchor for the pricing of resource stocks. The strengthening of resource stocks under the support of high dividend attributes has strongly catalyzed the performance of relevant equity sectors, and the contribution of high dividend attributes is also indispensable. This year's ten-year bond and 30-year bond market reflects the current dilemma of asset shortage, and the high dividend sector has become a scarce asset. The banking sector, which has also led the rise since March but does not have the commodity attribute, has benefited from the high dividend attribute.
The contribution of the high dividend attribute is reflected in: on the one hand, as the economy is facing structural transformation and prosperity assets are missing, the monopoly production factors of dividend stocks have become a moat to resist the downward pressure of the economy.
On the other hand, in the downward phase of interest rates, the performance price ratio of dividend stocks is prominent. We mentioned in the report "Rediscussion of Dividends and Growth" that the strength of dividend style is strongly related to the rolling change of ten-year bonds. The trading of dividend stocks is the slope of the range of change of phased ten-year bonds and the future expectation of the slope, that is, the second derivative of the yield to maturity of ten-year bonds, A while ago, the behavioral dividend assets provided sufficient premium under the acceleration of 10-year treasury bond yield. At present, China is at a critical point when the real estate policy is relaxed, and the balance sheet of the residential sector is damaged. It is necessary to rely on the government to increase leverage to promote economic recovery. Under such a paradigm, interest rates are easy to fall and difficult to rise, so the dividend style will prevail, and there will be trading space for resource stocks.
How will the commodity market be interpreted in the future?
The logic of supply is more to drive the strong price in the past, and demand is the key to the next round of market. The recovery of global demand in the first quarter has been reflected in this round of price increase, and a new round of market is expected to improve after the restart of the global credit cycle. However, the tight monetary policy of the Federal Reserve in the second quarter will make the boom margin of the global manufacturing industry fall back. In April, the global manufacturing PMI has also fallen back to the contraction range. However, China is currently at a critical point in the relaxation of the real estate chain. Whether the real estate industry can be improved is the key to the recovery of demand in China, and the effect of policy implementation still needs to be observed later. Therefore, the continuous improvement of demand needs to wait for new signals, and the performance of commodities may be differentiated.
Looking into the future, the rising price of non-ferrous commodities awaits more clues of demand, such as the sustained boom of global manufacturing industry; Promote the consumption of household appliances and new energy vehicles with the old for new policy; The development of emerging technologies has a demand driven effect on energy, metal and other resources; China's real estate improvement, etc. If the demand expectation is difficult to improve continuously, nonferrous metals represented by copper may face certain callback risks; With the clearing of the domestic real estate industry, the price of black goods is expected to rise, and the price difference with colored goods will gradually converge; It is difficult to falsify the grand narrative of US dollar credit losses in the short term. In the election year, the US government has the power to maintain fiscal expenditure to ensure economic stability, while the high debt of the US will urge countries to increase their holdings of gold. In the long run, gold is in a rising trend, and the valuation of geopolitical and political risks in the short and medium term also provides a margin of safety for gold prices; The volatility of crude oil is mainly affected by the supply side. Geopolitical conflicts and political elections may have an impact on oil prices, which is expected to remain volatile; For resource stocks, the market will revise the performance expectations of individual stocks based on the fluctuation of commodity prices, but with the support of the high dividend attribute, resource stocks have the advantage of "both offensive and defensive".
Risk tip: domestic economic recovery is slower than expected; The pace of interest rate reduction under overseas inflation and crude oil disturbance was lower than expected; Geopolitical risk
