Could we finally have bounced off the bottom?
It’s an enticing question to contemplate a couple of weeks before Christmas, as the snow falls and hearts warm and everyone tries to look forward to a new year and the rebirth of hope.
Today oil prices have rocketed up off their recent levels – zooming up 12 percent today so far in US dollar terms. Crop commodity prices have also had a nice day, with Chicago wheat, corn and soybeans all smartly higher. None of these prices are anywhere near where they were in mid-summer, but in the ag commodities there’s been a small rally going on all week and day after day gains are often the signs of a strong trend developing.
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But oil is the 800 pound gorilla in the commodity market, and for the past year where oil has gone ag commodities have meekly followed. When oil finally turns around, there’s a good chance ag commodities will get to enjoy part of the ride. There’s been all sorts of chatter about grains and oilseeds becoming energy commodities because of ethanol and biodiesel, so this apparent connection isn’t so far-fetched.
That’s why a 12 percent jump in oil prices is so pleasing for someone praying for a reversal to the ag commodities slump. It seems like a big deal.
But there are a couple of shadows hanging over any hopes from today’s action: 1) Analysts are saying that the commodity rebound is due to the slide in the US dollar, not due to underlying commodity demand strength.
2) Â Spectacular leaps in price like this – 12 percent in a day!!!!!!!!! – are almost commonplace these days. The other day I was lying on the couch sick, watching Bloomberg TV all day, and over the course of the day the market moved more than four percent, ending down three percent. It didn’t seem a big deal, and that is strange, because three or four months ago a four percentage swing in the equity markets was front page business news. Now it’s just business as usual.
So are we at the beginning of a Santa Claus rally? The post-harvest rally never happened, so we’re due for some cheer and goodwill. But these kinds of markets you can easily call.
