LONDON, Aug. 18, 2020 /PRNewswire/ -- In January 2020, presented three new Macro Themes – Forex, ESG, and China re-balancing. The emergence of COVID-19 as a global pandemic has made these three themes powerful overarching trends driving commodity influencing markets.
The political and economic response to COVID-19 has hastened and accentuated foreign exchange volatility; it has raised the importance of Environmental, Social, and Governance (ESG) issues and given voice to calls for stimulus packages to be 'green'; the global decoupling, started during 2019 trade wars, is accelerating China's economic re-balancing. These themes are influencing commodity markets in predictable ways.
Foreign Exchange movements:
Over the past year the US dollar has strengthened, while the currencies of many commodity producing countries have depreciated, most notably in Brazil, Chile, Russia and South Africa. This has had consequences for production costs, prices and trade flows. Short-term currency movements can shift markets in a different direction than the path implied by longer-term fundamentals.
What do these currency moves mean for the competitive structure of an industry? How has the depreciation of major commodity producing countries – such as the Chilean peso or South African rand – shifted the cost curve? What this means for prices and trade flows is accounted for within our analysis across the different commodity markets.
CRU analysts are constantly updating our cost curves to account for new assumptions and analysing what this means for the market. Recent insights include 'Gold entering unchartered waters as price surpasses 2011 record', 'Foreign exchange and energy price turbulence lower fertilizer production costs' and 'How foreign exchange movements have affected the chrome market'.
China re-balancing and reform:
2020 is a critical year for China as it marks the end of the 13th Five Year Plan (FYP) and the start of the 14th FYP. It is an obvious time to review the longer-term trajectory of the economy. To avoid the "middle-income trap" China has a vision to rebalance its economy away from consumption and towards investment.
COVID-19 has been an unprecedented shock. It has led to a sharp fall in Chinese GDP growth in 2020. This theme considers the Chinese economic cycle: is China on track to deliver its desired rebalancing in the aftermath of COVID-19? Or will the slowdown be faster due to domestic vulnerabilities or escalation of trade tensions with other parts of the world?
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