Anticipated Disruptions Increase Commodity Market Volatility
On October 8th, domestic commodity futures saw a mixed start with many varieties opening high and closing low. Among them, the container shipping index (Europe) futures main contract fell by more than 19%, while pure alkali, glass, and other building material futures were at the forefront of the decline. Crude oil futures, however, showed strong performance. Industry insiders stated that the anticipated economic recovery driven by policy and improvement in consumption have not yet materialized, and there have been no new fiscal policies introduced. As a result, most commodity futures varieties fell during the session. Nevertheless, the logic behind the current commodity futures prices has undergone some changes, shifting from a lack of effective market demand to a significant potential for future demand improvement. In the fourth quarter, opportunities to go long on crude oil and non-ferrous metals can be considered.
Crude oil futures performed strongly on October 8th, with a broad opening increase in the domestic commodity futures market. Many crude oil futures varieties hit their upper limits, but most fluctuated and fell back, showing mixed closing results. According to Wenhua Financial data, by the close, the Wenhua Commodity Index, which reflects the trend of domestic commodity futures prices, reported at 176.14 points, up 0.41%, after initially rising by more than 3%.
Looking at specific varieties, crude oil futures showed strong performance throughout the day. The main contracts for crude oil and fuel oil futures hit their daily upper limits, and the main contract for low-sulfur fuel oil futures rose by more than 8%, previously touching the daily limit. The container shipping index (Europe) futures main contract fell by more than 19%, previously touching the daily lower limit; the main contracts for building material futures such as pure alkali and glass also saw significant declines, with the main contract for pure alkali futures falling by more than 9%.
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Cheng Xiaoyong, Deputy General Manager of Guangzhou Financial Holdings Futures Research Center, said: "Apart from the crude oil and fuel oil futures contracts hitting their upper limits, most varieties on the domestic commodity futures market on October 8th opened high and closed low, mainly due to the unfulfilled expectations of economic recovery driven by policy and consumption improvement. Moreover, there were no new fiscal policies seen in the significant policies released by the National Development and Reform Commission. The market needs to pay attention to the effects of existing policies, especially the strength of demand improvement."
Regarding crude oil futures, during the National Day holiday when the domestic commodity futures market was closed, international crude oil prices rose significantly due to the rapid escalation of geopolitical tensions in the Middle East. Brent crude oil futures once surged by more than $10 from around $70 per barrel, which significantly boosted domestic crude oil futures varieties after the holiday.
Jing Chuan, Chief Economist at Shanghai East Asia Futures, stated: "Recently, the domestic commodity futures market has shown a certain degree of volatility, mainly influenced by a variety of factors such as the mismatch of macroeconomic cycles, differences in economic data, geopolitical risks, and changes in the supply and demand relationships of commodities themselves." The recent sharp fluctuations in commodity prices are mainly reflected in two aspects: on one hand, the decline in economic data in Europe and America has put pressure on commodity prices denominated in US dollars, while precious metals and energy commodity prices are supported against the backdrop of escalating geopolitical tensions. On the other hand, commodity futures prices denominated in Renminbi had previously been significantly pressured, but a series of measures利好 released by the State Council's press conference on September 24th and the Central Political Bureau meeting on September 26th, which were beneficial to the stock market and the real estate market, significantly boosted commodity prices denominated in Renminbi, driving a sharp rise in the prices of many commodity futures.
The logic of commodity futures market operation has changed. In fact, since mid-September, domestic and international commodity prices have swept away the previous gloom, with Brent crude oil futures prices once returning to above $80 per barrel, and伦铜 futures and Singapore iron ore futures prices once stood at $10,000 per ton and $110 per ton, respectively. In the last week of September, many domestic black series commodity futures varieties saw a daily limit scenario.
Guo Zhaohui, an analyst at the Commodity Team of CICC, believes that the rebound in this round of commodity prices began with the unexpected interest rate cut in the United States. After the 50 basis point interest rate cut by the Federal Reserve, the prices of non-ferrous metals such as copper and aluminum rebounded first, and the price of gold reached a new high. Subsequently, domestic economic expectations continued to heat up. In September, the Central Political Bureau's positive tone on the economy, the implementation of monetary policies such as interest rate cuts and reserve requirement ratio reductions, and the significant improvement in macro sentiment, along with the impact of geopolitical events in the Middle East, led to a relay increase in black series and crude oil varieties. However, the recently released US non-farm employment data for September highlights the resilience of the job market. Market expectations have further shifted towards a "soft landing" or even a "re-inflation" scenario. While concerns about a US economic recession have eased, market expectations for the extent of interest rate cuts within the year have also narrowed compared to before. The swing in interest rate cut expectations may also suppress gold prices. As the variety most closely related to the real estate and infrastructure cycles, the rise in domestic black series futures prices is one of the most direct expressions of market transactions.From the perspective of market operation logic, Jingchuan believes that the logic behind the recent commodity futures price movements has undergone some changes. In addition to market transactions of supply and demand, economic operation expectations, central bank monetary policy expectations, as well as fiscal and industry policy expectations have also become the focus of market transactions at different times. With the maturation of the futures market and the application of financial technology, the functions of futures pricing and risk management have become more efficient, severely impacting the traditional off-peak and peak season logic of commodity prices. Speculative demand has increased, and capital games play a greater role in price formation.
Cheng Xiaoyong also believes that the logic of bulk commodity operations has changed in expectations this year. Due to insufficient effective demand in the domestic market, many commodities have experienced inventory accumulation, and the prices of multiple commodities have continued to fall, especially the prices of building materials, which have seen a significant decline. In late September, the central bank's reduction of existing mortgage loan interest rates will be beneficial for repairing the balance sheets of residents' departments. Policy stimulation has shifted from the original supply side to the demand side, which means that the future economic improvement will be stronger, and the space for demand improvement may also be larger. This is conducive to accelerating the de-stocking of the commodity market in the future and stabilizing and rebounding prices.
Looking forward to the fourth quarter, Jingchuan believes that the uncertainty of the Federal Reserve's interest rate reduction policy and the global economic situation may have an impact on the commodity futures market, and it is necessary to closely monitor these macroeconomic factor changes.
Cheng Xiaoyong believes that the trend of bulk commodities in the fourth quarter will be differentiated. The prices of futures varieties with a high degree of internationalization may continue to rise, especially non-ferrous metal varieties, where supply contraction will provide continuous benefits. However, building materials that reflect domestic demand still need time to bottom out. The current real estate policy is still strictly controlling the increase, and it is difficult to immediately improve the future demand for front-end consumption of black series and building materials. Chemical products also face de-stocking pressure, but the rise in crude oil prices may bring cost-end support.
Jingchuan said that it is expected that crude oil prices will maintain a strong domestic and weak foreign situation within the year. The continuous effect of domestic policy on demand expectations will continue, and domestic crude oil prices will show a strong trend. The tense situation in the Middle East and changes in U.S. non-agricultural employment data will increase the volatility of the crude oil market. The prices of fats and oils will continue to be disturbed by the supply side and show a strong operation. In addition, the prices of precious metals are expected to continue their strong operation trend, black series varieties may show a rebound and then weaken, and non-ferrous metals will show a large fluctuation overall. "In general, in the fourth quarter, the commodity futures market may continue to be affected by macroeconomic factors, geopolitical situations, and supply and demand relationships. Investors need to closely monitor the changes in these factors and adjust their investment strategies in a timely manner."
Regarding black series commodities, Guo Chaohui believes that although the market demand for domestic bulk commodities is still in the bottoming stage, the high-frequency demand data for black series and non-ferrous metal varieties have shown marginal improvement signs, and terminal inventory has continued to decrease. However, the current rebound in the price of black series varieties has exceeded expectations, and whether it can continue to rise depends on the subsequent fiscal efforts and the performance of the real economy.
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