Commentary on Commodities

by Gilles Seurat, Multi Asset Fund Manager, La Française AM.

We remain constructive on the outlook for commodities. The main driver is clearly the economic recovery we are currently experiencing. Economies are gradually reopening and this will fuel significant appetite for transport. Revenge travel could be a topical hashtag as early as this summer and this will boost oil consumption. What’s more, many oil producers either went bankrupt or had to slash capex to preserve their balance sheet; this will weigh on production. Base metals should fare well too. The manufacturing sector is booming: savings are impressive and will feed future consumption of manufacturing goods.

What’s more, shortages like semiconductors or wood will probably stimulate precautionary storage, which will push higher demand and prices. This backdrop could last for a while; the semiconductor shortage is expected to continue into 2022 for instance.

Precious commodities are more closely linked to the dollar and real yields, i.e. bond yields minus inflation. Real yields rose this year on the back of a strong macroeconomic momentum in the US. However the Fed has communicated that its first rate hike should not be before 2023, which could weigh on market’s anticipation of future rate hikes. This backdrop could prevent real yields from rising, which would be positive for precious metals.

Disclaimer

This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.