Key themes
Commodity markets have in general benefitted from the improved sentiment in financial markets over the past month. Sentiment has improved on the back of expectation of easier global monetary policy as the European Central Bank and Bank of Japan are expected to cut interest rates and the Federal Reserve is expected to delay a further hike in interest rates - all will support commodity demand. Fundamentals are still weak though, as there is overproduction in the oil and grains markets and rebalancing in the base metal market is in the early stages. Hence, sentiment may quickly reverse if central banks do not live up to expectations.
Oil
The Saudi-Russian oil production freeze was no game changer for the oil market, Instead improvement in global income growth in latter half of 2016 and in 2017 along with a rebalancing of oil market and the expected drop in the USD should help prices to recover. We recommend consumers to hedge exposure in H2 16 and 2017.
Metals
Overall, stronger global real economic growth and income growth towards the end of the year, lower supply growth and a weaker USD and CNY are set to support the recovery in base metal prices. We recommend consumers to hedge exposure in H2 16 and in 2017 at current low levels.
Grains
Overall, the benign supply situation in the major grains and oilseeds markets is likely to continue to keep prices at a low level. We recommend consumers to hedge US soybean exposure and European rapeseed exposure in 2016 and 2017 at current levels.
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