Commodities caught up in market jitters

Concerns about the outlook for demand, amid sharp declines in global equity prices, are weighing on the prices of most commodities. Even the oil market, which has been focussed on supply issues for much of this year, has woken up to the risk of slower growth in consumption. Perhaps not surprisingly, precious metals have been holding up rather well but this may not last as we think the Fed will raise rates again at its December meeting. Indeed, if we are right and next Friday’s US employment report is strong, gold could come off its recent highs. Agricultural markets will be closely following events in Brazil as the appreciation of the Brazilian real has given a significant boost to the prices of the country’s agricultural exports, notably sugar and coffee. It now looks almost inevitable that market-friendly Jair Bolsonaro will win the second-round election in Brazil on Sunday, which could give a further lift to the real. However, we think there will be a renewed decline in the price of sugar, in particular, as the market is more than comfortably supplied and the real may fall back as Bolsonaro’s honeymoon period comes to an end.