The current bulk commodities are in a critical transition period.
There have always been three major illusions in the futures market: iron ore will fall, rubber will rise, and she will love me!
Now, iron ore has fallen, rubber has risen, but love is still not here, which is a bit like the feeling of "mountains without edges, heaven and earth merging."
After nearly four months of decline, the cultural commodity index has dropped from 192 to 162 at its lowest.
Regardless of the extent or depth of the decline, some adjustment is needed, and the voices calling for bottom fishing are incessant.
In addition, the Federal Reserve has recently cut interest rates by 50 basis points beyond expectations, and there are rumors that China's LPR will cut interest rates by 20 basis points, and the existing housing loans may be reduced by 40-50 basis points in advance.
The mood of the entire market has suddenly picked up.
I think, at this time, most people who care about bulk commodities are thinking about one question: Has the trend of bulk commodities reversed?
Should we bottom fish?
In fact, I have already answered this question at the end of the article "Bulk Commodities Bottom Out and Rise: Will Interest Rate Cuts Trigger Inflation?"
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a few days ago, so I will not repeat it here.
Now let's talk about the latest developments.
Looking at bulk commodities, the most essential rule is the law of supply and demand, which no one can escape.
On the demand side, the two issues that everyone cares about the most are: ① Will the US interest rate cut cause a second round of inflation?
Personally, I think it won't in the short term, because the stimulating effect of interest rate cuts on the economy is more reflected in expectations, and the actual boost to the economy is not obvious.
Even if interest rates are cut now, the overall cost of capital in the United States is still rising.
This is because the direction of the economy is determined by the debt repayment cost (average interest rate), and the immediate interest rate only determines the cost of newly issued debt.
Therefore, it takes time for interest rate cuts to take effect.
Before the interest rate cuts take effect, the side effects of high interest rates will be greater than the positive effects of the cuts.
In addition, the Federal Reserve Chairman has already said that the balance sheet reduction will not stop temporarily.
This means that although the force driving inflation is strengthening, the balance sheet reduction action that suppresses inflation has not stopped and will continue to fight against inflation.
② Will the country adopt large-scale stimulus measures?
We can see that the current expectation for Q3 GDP is about 4.5%.
If the annual economic target of 5% is to be achieved, it means that the economy needs to grow by about 5.5% in the fourth quarter.
Under the current deflationary spiral, it is impossible to achieve this without a large stimulus.
Therefore, the market's expectation for policy is very strong.
Personally, I also believe that policies will gradually take effect in the future, but monetary policy is not very useful.
Simply lowering interest rates will not stimulate the economy.
Because capital will idle, and money will be stuck in banks and not come out.
Even if the interest rate on existing housing loans is reduced, it is just moving money from one pocket to another, and the stimulating effect on the economy is relatively limited.
("Who is paying when reducing the interest rate on existing housing loans?")
At this time, only large-scale expansionary fiscal policy, creating a huge demand, or real quantitative easing, buying assets, and promoting inflation expectations will have a substantial reversal effect on bulk commodities, otherwise, it is useless.
However, there is one factor that may form a certain stimulus in the short term.
Because the United States is about to impose additional tariffs on Chinese goods (raising tariffs on Chinese electric vehicles by 100%, imposing a 50% tariff on Chinese solar cells, and imposing a 25% tariff on Chinese steel, aluminum, electric vehicle batteries, and key minerals, etc.
), most will take effect on September 27, but some will take effect next year.
Before the formal implementation, the United States may have the demand for replenishment, which may drive a round of demand recovery.
Another key factor is expectations, which are hard to say because there is always a gap between the truth and expectations.
If the Federal Reserve cuts interest rates too quickly and the market's inflation expectations rise, it may have a certain impact.
Looking at the supply side, the United States is fully promoting crude oil production to reduce inflation, which is not conducive to the supply side of the entire bulk commodity, because crude oil is the mother of bulk commodities.
In addition, the Southern Hemisphere is about to enter the weather speculation cycle, as well as the winter storage cycle, which is very complex, and each variety is not the same.
However, looking at the big direction, the supply is relatively sufficient, even excessive compared to demand.
Overall, the current bulk commodity market has a poor foundation, and the demand side is mainly driven by expectations.
Whether the expectations are strong or not depends on the strength of the policy.
Whether the expectations can be realized later is another issue that needs to be discussed in the next stage.
Looking at the supply side, it is likely to become the main force for the differentiation of commodities in the next stage.
PS, in the midst of the interest rate cut, there is a piece of news that many people have overlooked.
The Monetary Policy Committee of the Central Bank of Brazil decided on the 18th to raise the benchmark interest rate by 25 basis points to 10.75%.
This is the first time the Central Bank of Brazil has raised interest rates in two years.
There is not only one voice in the market now, and the demand is still the mainstream.