Commodity

Commodities refer to material commodities that can enter the circulation field, but are not retail links, have commodity attributes and are used for industrial and agricultural production and consumption. In the financial investment market, bulk commodities refer to commodities that are homogeneous, tradable, and widely used as industrial basic raw materials, such as crude oil, non-ferrous metals, steel, agricultural products, iron ore, and coal. Including 3 categories, namely energy commodities, basic raw materials and agricultural and sideline products.

One is the large price fluctuations.

Only the price of commodities fluctuates greatly, and traders who intend to avoid price risks need to use the forward price to determine the price first. For example, some commodities are subject to monopoly prices or planned prices, and the prices are basically unchanged, and there is no need for commodity operators to use futures transactions to avoid price risks or lock in costs.

The second is the large supply and demand.

The function of the futures market is based on the prerequisite for the extensive participation of both the supply and demand of commodities. Only commodities with large spot supply and demand can fully compete on a large scale and form an authoritative price.

The third is easy classification and standardization.

The futures contract prescribes the quality standards of the delivered commodities. Therefore, the futures varieties must be commodities with stable quality, otherwise, it will be difficult to standardize.

Fourth, it is easy to store and transport.

Commodity futures are generally forward-delivered commodities. This requires that these commodities are easy to store, hard to deteriorate, and easy to transport, so as to ensure the smooth progress of physical delivery of futures.

Bulk commodities have 5 characteristics at the same time:

  • Large supply and demand
  • Origin
  • Raw materials
  • National unified price limit
  • Affect the national economy and people’s livelihood
    About 20 kinds of agricultural and sideline products: including tea, apples, corn, soybeans, wheat, rice, oats, barley, rye, pork belly, live pigs, live cattle, calves, soybean meal, soybean oil, cocoa, coffee, cotton, Wool, sugar, orange juice, rapeseed oil, eggs, etc., among which soybean, corn, and wheat are called the three major agricultural futures.

10 kinds of metal products: including gold, silver, copper, iron, aluminum, lead, zinc, nickel, palladium, and platinum.

There are 5 types of chemical products: crude oil, heating oil, unleaded regular gasoline, propane, natural rubber, etc.

The Federal Open Market Committee under the Federal Reserve announced after the two-day meeting that the 0-0.25% ultra-low interest rate maintenance period will be extended to mid-2015, and QE3 will be launched from the 15th to purchase $40 billion in mortgages every month Loan-backed bonds, existing distortionary operations, etc. remain unchanged.

The market has responded well to this, but most people believe that commodities will become a refuge for the flood of dollars, while real estate has picked up.

The Fed has reservations

Goldman Sachs commented on QE3: At the press conference, Bernanke did not give specific criteria for judging the speed and magnitude of improvement in the labor market, and this is a necessary criterion for the committee to choose to stop or accelerate the purchase of assets. We believe that unless the Fed sees a significant and fairly rapid decline in the unemployment rate, which is faster than the small decline we expected, the Fed will stop purchasing assets in a short time. A stagnation or rise in the unemployment rate may accelerate the pace of asset purchases, and more aggressive forward-looking monetary policy guidance may also emerge. Bernanke hinted that if the Fed’s actions today prove to be insufficient, there is the possibility of adding additional channels of communication, which may include nominal GDP targets.

QE3 spawned a commodity bubble

Ruggy Sharma, Head of Emerging Markets and Global Macro Strategy, Morgan Stanley Investment Management Company: The first two rounds of QE measures in the United States spawned a commodity bubble, increased income inequality, and set a bad example for other countries in the world. In the 16-month first round of QE as of March 2010, the Commodity Research Bureau (CRB) commodity price index rose 36%, while food prices rose 20% and oil prices soared 59%. In the second round of QE, which lasted 8 months to June 2012, the CRB index rose 10%, food prices rose 15%, and oil prices rose another 30%.

Generally speaking, monetary easing will indeed push up stock prices, but will not push up commodity prices. However, since the Federal Reserve began to vigorously relax its monetary policy in late 2007, hundreds of billions of dollars of funds have flowed into the market of new financial products (such as exchange-traded funds), allowing investors to trade commodities like stocks. There is a close relationship between the stock market and commodities, and prices rise and fall in unison.

QE3 overheats real estate

Global Foreign Exchange Hong Kong Monetary Authority Director Chen Delin said that if necessary, the Hong Kong Monetary Authority will expand measures to counter the economic cycle. The Fed launched the third round of quantitative easing measures (QE3), putting Hong Kong real estate at risk of overheating.
Chen Delin pointed out that QE3 will not have an excessive impact on the Hong Kong Interbank Offered Rate. However, he said that the flow of funds may fluctuate again, so the HKMA will introduce counter-cyclical regulatory measures in due course to guard against the risk of a real estate market bubble.

QE3 is good for real estate investment

Penghua US real estate fund manager Qiu Tao said that the launch of QE3 is bound to have a positive impact on REITs. On the one hand, the effect of QE3 depressing interest rates is good for fixed-income assets. On the other hand, REITs can obtain financing at a lower cost.

QE3 causes commodity prices to fall

According to a report by the Voice of Economics “Trading Status”, Zhu Dan, assistant to the director of Soochow Securities Research Institute and a researcher in the coal industry, was a guest program on the 15th to interpret investment opportunities in coal stocks. Zhu Dan believes that after the launch of QE3, commodity prices will fall.

The depreciation trend of the dollar has basically been contained, and the prices of commodities are likely to fall. After the demand of the real economy drops, the large cycle of commodity prices may end. After the launch of QE3, expectations of currency depreciation and price increases in the bulk commodity market have come to an end, it may lead to a wave of substantial adjustments, including adjustments to commodities such as gold, copper, and aluminum. The direction of substantial adjustment is downward adjustment.

Commodities become U.S. dollar substitutes

Fu Peng, chief macro consultant of Galaxy Futures: QE3 is here, and commodities are expected to become a substitute for the US dollar. QE3 further reflects to a certain extent that global monetary policy has further slipped to the cliff of “fluidity flooding”. The future monetary system will face huge shock risks. Such monetary policy will affect interest rates and exchange rates and thus affect the economy. Although the actual effect of the method is limited, its negative effects will be more obvious. The United States is further facing the pressure of the fiscal cliff, and the risk of currency credit in the global monetary system has been further subjected to the background of “step by step loosening”. The continuous increase in currency credit risk will eventually cause investors to stay away from the paper currency system, and “when people start to stay away from the US dollar, commodities will become the best substitutes”, among which commodities with strong financial attributes For example, gold, silver, copper, crude oil, etc. will undoubtedly become the most shining stars.