In this month’s episode I’ll provide a brief outlook for commodity markets from our strategy desk. Oil was the clear winner over the past three months, which accounted for most of the gains in the broad commodity index. Most price signals have extended into overbought territory, although pullbacks could be temporary over the next quarter. Elsewhere, metals have stabilized and oversold signals could present buying opportunities. Over the short-term commodity prices should trade at a premium given supply risk and geopolitical issues. Long-term (two-three years), the effects of slowing economic growth as a result of tighter monetary policy and inflation could weigh on commodity prices, especially as recession signals advance.
Most price signals have extended into overbought territory, although pullbacks could be temporary over the next quarter. Elsewhere, metals have stabilized and oversold signals could present buying opportunities.
Trading performance was positive in Q1, built on the success of Q4. Short palladium and long soybean oil were the best performing trades, while sharp moves in wheat and oil detracted from overall gains. At times, volatility can lead to frequent or contradictory signals.
Evidently, returns across commodities are not equal. At times, there is wide divergence between sectors such as oil/gas, agriculture and metals. That means the risk of a core long position can be offset with tactical long/short positions in specific commodities.
For now, here is our base-case into Q2:
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