The first quarter of 2024 was marked by the appreciation of several commodities, with one of the main ones being gold, which saw a growth of over 13% year-to-date. Other commodities also experienced significant gains, driven by supply factors; for instance, oil was influenced by OPEC+ measures, while cocoa saw a significant drop Africa’s production. In April, the highlight of the second quarter so far is industrial metals, which have already accumulated a 12% increase during the fortnight, as indicated by the BBG sub-index.
The industry was one of the sectors most affected by the rise in interest rates. Although there is still some uncertainty about when the reversal of restrictive monetary policy will occur in the US, the market is already pricing in an improvement in the economic environment, which has already impacted the industrial sector's recovery. One way to observe this is through PMIs, an index that indicates the pace of expansion or contraction of the sector. In March, both the US and China surpassed the 50 mark on the PMI index, indicating expansion, and it is expected that this pace of recovery will continue in April. This largely accounts for the surge in industrial metals consumption.
An uptick in manufacturing activity typically bodes well for commodities, particularly metals, minerals, and energy, given their integral role in factory production, alongside the reliance of logistics chains on fuels. Higher GDP revisions by organizations such as OPEC and the IMF further bolster the anticipation of a global economic rebound, fueling expectations of heightened demand. Additionally, some level of geopolitical uncertainty has manifested in the prices of various commodities, contributing to a bullish outlook for commodity prices.
Nevertheless, higher interest rates and a strong dollar remains a key topic for the market. Despite the US GDP growth in the last quarter recording 1.6%, which is below the expectations of 2.5%, inflation indicators still show risks. The PCE and Core PCE rose by 0.3%, in line with expectations, but the supercore of services, excluding housing, climbed to 0.39%. This remains elevated compared to the Fed's target interest rate of 2% annually, suggesting inflation might be more entrenched than anticipated.
