Commodities headed to a better year

on Dec 24, 2019
Updated: Mar 11, 2020
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  • The S&P 500 and the Invesco DB Commodity Index Tracking Fund DBC are up 27.2% and 10.5% this year.
  • Goldman forecasts returns of 9.1% from energy, 7.7% from precious metals, and 7.9% from the livestock sector.
  • The recent Phase One trade deal saw China promise to increase commodities imports from the US by $200 billion in 2020 and 2021.

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In 2019, commodities globally enjoyed decent growth. The S&P 500 and the Invesco DB Commodity Index Tracking Fund DBC are up 27.2% and 10.5% this year, respectively.

However, experts believe that 2020 could be one of commodities’ best trading years, thanks to the just concluded phase one trade deal, OPEC supply cuts, and UK elections.

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Following an improved oil outlook, global research firm Goldman Sachs recently raised its 12-month commodity returns forecast by 3% to 6.4%. Additionally, early this month OPEC members met in Vienna and agreed to cut supplies until March further next year, a decision that is expected to boost the commodity’s fortunes going into 2020.

A report of Goldman’s forecasts revealed returns of 9.1% from energy, 7.7% from precious metals, and 7.9% from the livestock sector.

Both investment banks J.P. Morgan and Goldman Sachs expect OPEC’s cuts to have a positive impact on oil markets. In fact, according to J.P Morgan, the oil markets will experience a market deficit of 200,000 BPD next year. The petroleum exporting countries agreed to cut suppliers by 500,000 BPD from January next year.

Reduced Brexit uncertainty and improved trading policies following the China-US trade deal are expected to play a significant role in boosting the commodities markets moving into 2020.

Further, the Fed hinted at no further interest rates cuts next year, and that is expected to keep the USD in check.

According to Goldman Sachs analyst Brian Singer, “due to more favourable inventories”, Brent crude will rise to $63 and $58.50 for WTI, from $60 and $55.50 respectively in 2020.

J.P. Morgan raised Brent’s crude oil forecast from $59 per barrel to $64.50 per barrel in 2020.

The recent trade deal between the US and China also saw the latter promise to raise commodities imports by $200 billion in 2020 and 2021, out of which about $40 billion will be allocated to agricultural produce.

And with Prime Minister Boris Johnson’s win, things are certainly bound to move as far as the Brexit is concerned. Mr Johnson has vowed to get the Brexit done by the end of next month and cut a new deal with the EU by the close of next year.

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