Commodity prices in the spotlight as battle between inflation and recession plays out

Equities finished higher in Thursday trading, just off their best levels, with the S&P up for the fourth consecutive session while commodities staged a rally.

Even with the recent gains, the S&P 500 is still down about 19 per cent from its all-time high achieved in January.

Across the sectors, today is probably the first day in a long time where both the energy sector and consumer discretionary sectors performed alongside each other.

Best-performing industries were coal, copper, home furnishing and retail, computer and electronics.

Energy stocks were among those leading the gains on Thursday, reversing some recent losses. Exxon rose 3.2 per cent, and Occidental Petroleum gained nearly 4 per cent.

Brent crude oil, which has found strong support this year from sanctions against major producer Russia over its invasion of Ukraine, rose $4.20 or 4.3 per cent to US$102.73 a barrel.

Right now the battle between inflation and recessionary fears is playing out in commodity pricing, with resource companies trading back to levels achieved 12 months ago, albeit a very strong correction in pricing in recent months.

Over night Freeport-McMoRan and Nucor rose 6.7 per cent and 4.3 per cent, respectively. On the London Stock Exchange, Rio gained 3.7 per cent, while BHP gained 3 per cent in the US.

Copper ended up 4.7 per cent — although still at an 18-month low — with bullish positioning falling dramatically as indicated by copper futures. If it keeps up, this trend should be — considered in isolation — excellent news for investors. Given the way energy and commodity prices seep into so many other prices, a sustained decline in commodities would take a big bite out of inflation, allowing central banks to tighten policy less aggressively, giving economies and asset prices relief.

Of course falling commodity prices do not reflect an improvement in fundamentals or specifically an increase in supply. Instead, they reflect financial speculators’ shifting their positions in anticipation of a withering of demand that may or may not materialise. It’s hedge funds that are moving commodity liquidation flows. And it’s the biggest trade in the market at present.

The reason commodities are falling in tandem and at speed is because of fears of recession, which puts the positive effect on inflation in a bleak context.

The US dollar was flat overall, but weaker on the commodity crosses and vs sterling. 
Bitcoin futures were up 7.4 per cent.

The SPI futures are pointing to a 0.8 per cent gain.

Figures around the globe

US markets closed higher. The Dow Jones gained 1.1 per cent to 31,385, the S&P 500 gained 1.5 per cent to 3,903 and the Nasdaq closed 2.3 per cent higher at 11,621.

Across the Atlantic, European markets closed higher. Paris added 1.6 per cent, Frankfurt rose almost 2 per cent and London’s FTSE closed 1.1 per cent higher.

Asian markets closed higher. Tokyo’s Nikkei gained 1.5 per cent, Hong Kong’s Hang Seng gained 0.3 per cent and China’s Shanghai Composite added 0.3 per cent.

Yesterday, the Australian sharemarket closed 0.8 per cent higher at 6,648.

Ex-dividends

There is one company set to trade without the right to a dividend.

Collins Foods (ASX:CKF) is paying 15 cents fully franked.

Dividends payable

There are a number of companies set to pay eligible shareholders today.

Gryphon Capital Income Trust (ASX:GCI)
Metrics Income Opportunities Trust (ASX:MOT)
Metrics Master Income Trust (ASX:MXT)
Orica (ASX:ORI)

Commodities

Iron ore is trading 2.2 per cent higher at US$114.85 a ton.

Iron ore futures are pointing to a 3.1 per cent rise.

Gold added $3.20 or 0.2 per cent to US$1740 an ounce.

Silver was up $0.03 or 0.2 per cent to US$19.19 an ounce.

Oil rose $4.20 or 4.3 per cent to US$102.73 a barrel.

On the London Stock Exchange, Rio gained 3.7 per cent, BP gained 4.5 per cent and Shell added 3 per cent.

Currencies

One Australian dollar at 7:10 AM has strengthened compared to the US dollar yesterday, buying 68.40 US cents (Thu: 67.80 US cents), 56.90 Pence Sterling, 93.04 Yen and 67.34 Euro cents.