Elias Stein
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Interpreting commodity prices is a challenge. Prices of commodities like oil, wheat, and copper are sliding as recession concerns grow. In theory, a weaker economy reduces demand. Construction slows—copper is used in wiring and plumbing—as do sales of anything electrical.
Experts differ on what this means. “Fears of a global recession have come front and center, eclipsing inflationary concerns,” says Helima Croft, head of global commodity strategy at RBC Capital Markets. Softness in commodity prices shows “real concerns about a hard landing and what that would mean for demand.” Ryan Grabinski, investment strategist at Strategas, expects demand for some metals to “end up being a little softer,” especially if building activity in China falls. But “agricultural and energy commodity demand is still there.”
Yardeni Research chief investment strategist Edward Yardeni sees prices reflecting sentiment on the global economy: “Right now they are definitely pointing towards weaker demand for commodities broadly, which could only be because global economic growth is slowing.” In a note, he said U.S. oil output has risen and high prices are stalling, with Brent crude off 6.5% in June. But he warned that “the geopolitical situation remains in flux” and trigger another surge in food and energy prices.
Are falling commodity prices a secret weapon against inflation? Yardeni notes that financial markets were recently “encouraged” to see prices peaking as possible real-time inflation indicators. Croft is noncommittal. “It’s too early to tell because we don’t know the duration of the pullback.”
Last Week
Good Riddance, First Half
The Bank for International Settlements started the week by urging central banks to be aggressive in raising rates to smother inflation. Stocks opened mixed, then fell, led by tech, on sagging consumer confidence and after the Federal Reserve’s Jerome Powell refused to guarantee a soft landing. The worst first half since 1970 ended on Thursday—dismal but done. Stocks then rallied. On the week, the
Dow Jones Industrial Average
lost 1.28% to 31,097.26; the
S&P 500
dropped 2.21% to 3825.33; and the
Nasdaq Composite
shed 4.13% to 11,127.85.
Russia in Default
Russia defaulted on its debt, missing $100 million in payments on two foreign-currency bonds, then blowing through a 30-day grace period—the first time it defaulted on foreign debt since its 1917 revolution. Litigation could take years. Meanwhile, the Group of Seven sanctioned Russian gold and proposed capping the price of its oil. NATO agreed to bolster forces to 300,000 to protect the Baltic states, and the U.S. will put troops in Poland. Ukraine took back Snake Island.
Decisions, Decisions
The Supreme Court’s conservative supermajority followed precedent-shattering decisions blocking a state gun law and ending abortion as a constitutional right by expanding religious rights and limiting Environmental Protection Agency actions on climate change. A number of states moved to ban abortion. Separately, a Trump White House aide testified dramatically at a Jan. 6 committee hearing about what she heard before and during the attack on the Capitol.
Capital Questions
The Fed said JPMorgan Chase, Bank of America, and Citigroup had to add to their capital after stress tests, possibly limiting share buybacks. JPMorgan and Citi announced they would leave quarterly dividends intact, and BofA said it would raise its quarterly payout to 22 cents a share. Morgan Stanley and Goldman Sachs are hiking their dividends.
Annals of Deal Making
Institutional Shareholder Services urged Spirit Airlines shareholders to vote for a merger with Frontier Group over an offer by JetBlue Airways. ISS had supported the JetBlue bid until Frontier upped its offer. JetBlue sweetened its bid and Spirit postponed a vote on the deal until July 8…Crypto exchange FTX, which had extended a credit line to crypto lender BlockFi, agreed to an option to buy it for $240 million, plus a larger credit line. Bloomberg said FTX was internally discussing how to buy Robinhood Markets. FTX denied talking to the firm…The SEC rejected Grayscale’s plan to turn its Bitcoin Trust into an exchange-traded fund. Grayscale sued…Crypto hedge fund Three Arrows had to liquidate…Kohl’s ended talks with Franchise Group, owner of Vitamin Shoppe, and cut its outlook, saying retail had deteriorated…A federal grand jury subpoenaed Digital World Acquisition, the SPAC Donald Trump’s media start-up was merging with.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
