The Commodity Research Board (CRB) spot price index has correctly anticipated all the major and minor turns in the global economic cycle during the past six years. As such, it is significant that seasonally-adjusted commodity prices have been drifting lower in the past three months.
In contrast, survey-based lead indicators of economic growth have recently become more bullish. One of the most reliable of these Germanys monthly IFO Business Climate Index has ticked higher in November, December and January, suggesting that the German and global economies are rebounding.
The expectations for better global growth ahead coupled with the reduction in tail risks explain the substantial uplift to risk-asset prices. Nevertheless, according to our European Investment Strategy service, stock markets may have moved a bit too far too soon, and especially relative to other risk asset classes like commodities.
If our expectations for improved global growth materialize, then commodity prices could experience a catch-up phase relative to equities. Likewise, if expectations are not met, there is potentially greater risk to equity prices.
Either way, multi-asset investors should expect commodities to outperform equities in the near term.