The raw commodity sector has been hammered in recent weeks, as seen by the Continuous Commodity Index, which is in a 13-month-long price downtrend and is now hovering near a nine-month low. The CCI is a basket of 17 raw commodity futures prices (including crude oil, metals, grains, international foods and fibers) rolled into one composite price index.
Weak economic data coming out of the major economies of the world recently, including the U.S., European Union and China, have been the major negative force pushing commodity market prices lower. Last Friday's U.S. employment data showed job creation at less than half the level the market had expected. That helped to drive Nymex crude oil futures prices to an eight-month low of $81.21 a barrel on Monday. Most other major raw-commodity market prices are also hovering near multi-month lows.
While Friday's U.S. jobs report provided another bearish body blow to the commodity markets, it also rekindled notions among market watchers that the Federal Reserve will now implement further accommodative monetary policy measures to try to keep the very tepid U.S. economic recovery from slipping back into recession.
Meantime, the European Union has also seen a stream of disappointing economic reports that suggest the bloc is in, or close to, recession. And China has been loosening its monetary policy in recent months to try to initiate stronger economic growth.
Two events on tap this week will garner extra close scrutiny from commodity market watchers: Fed Chairman Ben Bernanke's speech to a joint economic committee of the U.S. Congress on Thursday, and a meeting of European Central Bank officials on Wednesday. Traders and investors will be looking for clues or outright pronouncements of fresh monetary policy easing moves from the Fed or the ECB.
Commodity market bulls want fresh monetary policy stimulus, as recent history suggests that this induces investors to seek out raw commodities. This is partly because of fears of price inflation, but also because easing U.S. monetary policy would be U.S. dollar-bearish, which in turn is generally commodity market-bullish. Most major commodities are priced in U.S. dollars. When the greenback weakens on the foreign-exchange market, those raw commodities become cheaper to purchase with other currencies.
Further so-called "quantitative easing" from the Federal Reserve or the European Central Bank would likely have an initial bullish impact on most commodity markets. However, there are two important caveats if such occurs: By the time the easing of money policy occurs, most markets will likely have already factored into their price structures the expected easing. And even more importantly, further easing of U.S. and E.U. monetary policies would be an acknowledgment from the Fed and the ECB that their economies are in trouble. That would also mean less demand for raw commodities from the major consumers of those commodities.