New Coronavirus Concerns Drive Selloff in Raw Materials
October 28 2020 - 1:55PM
Dow Jones News
By Amrith Ramkumar
The threat of new coronavirus lockdown measures around the world
dragged down raw materials prices Wednesday, heightening concerns
among traders that investments tied to the global economy are set
for another painful selloff.
Commodities including oil and silver plummeted early in the year
as lockdowns spread from China to Europe and the U.S., then staged
a monthslong rebound this summer with the world economy reopening
for business. That rally is starting to show cracks, though, with
commodities among the market's worst performers during this week's
bout of selling.
U.S. crude-oil futures tumbled nearly 6% to $37.22 a barrel on
Wednesday, falling back toward the low end of their recent trading
range. Prices started the year above $60, then briefly fell below
$0 in April for the first time ever due to a glut. Brent crude, the
global gauge of oil prices, slid 5.2% to $39.44 a barrel
Wednesday.
Other commodities also fell, pushing most actively traded silver
futures down about 4.6%, gold down 1.6% and copper down about 1%.
Gold and silver are often perceived to be haven metals that hold
their value during times of market turmoil, but a rising U.S.
dollar was hurting them and other commodities by making them more
expensive for overseas buyers.
Other metals such as palladium also dropped. Some precious
metals have industrial uses, making them at times sensitive to
shifts in the outlook for industrial metals demand.
The dollar's rally and commodity selloff came as investors
grappled with rising coronavirus cases across Europe and the
prospect of new lockdown measures in the region. Many expect fresh
restrictions in France and Germany, two of Europe's largest
economies and key parts of the global manufacturing industry that
drives demand for commodities.
Rising cases in the U.S. are amplifying those worries,
triggering anxiety that the coronavirus surges in France and
Germany suggest the start of a global trend.
"That has an exclamation point because they're the two most
developed economies in Europe," said Robert Yawger, director of the
futures division at Mizuho Securities USA. "It's just one negative
element after another."
Government data released Wednesday showed that U.S. crude-oil
inventories rose much more than expected last week and signaled
that gasoline demand remained tepid and well below a recent peak
hit in August. That is a concern for analysts who fear that travel
activity will slow during the colder months, particularly if
coronavirus cases keep rising.
Global consumers tend to spend more money and engage with
businesses more when they are moving around, so weaker fuel-demand
data could also portend trouble for the global economic
recovery.
Demand for commodities in China, the world's biggest consumer,
remains strong after it largely controlled the pandemic. But
analysts say fuel consumption will need to pick up around the world
to support global economic growth and raw materials prices. That
hasn't been the case lately, particularly in the U.S.
"The [fuel]-demand data suggest that households remain
cautious," Capital Economics analysts said in a note.
--Orla McCaffrey contributed to this article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
October 28, 2020 13:40 ET (17:40 GMT)
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