2016 has been a wonderful year in the global financial markets. The year has been spearheaded by various elements which at the beginning seemed unlikely. With the onset of the various elements, profit-making opportunities in different asset classes came to the forefront. Traders and market practitioners alike was spell bounded by the various opportunities knocking at the door this year. Without doubt, the year will leave an imprint in the sands of time as the global financial markets welcome 2017. If 2016 was a preview of the larger picture, then 2017 will have many untold stories waiting to be unraveled.
In a nutshell, the commodity markets have swung either way with opportunities confronting the long and the short position traders. The bullion markets, having begun in bearish territories, tread higher by the middle of the year as the BREXIT saga captured the attention of the world audience. However, since then, the strengthening of buyers have diminished and sellers were seen shining as FOMC finally made the call to increase the Federal Funds Rate by 25 basis points to 0.75% in mid-December. Likewise, gold and silver benefitted from their safe haven status on the back of BREXIT as both metals conjured up the highest prices since March 2014 and July 2014 respectively. However, since then, the markets had factored in the probability of the rate hike which pushed sellers to drive markets forward.
Copper had commenced the year on a bearish note as tarnished prospects for growth from China had limited the demand for the base metal. However, after China cut its reserve requirement ratio, prices started skyrocketing. Mine strikes in Chile coupled with Trump’s victory further stimulated prices to reach its highest since June 2015.
Oil markets were the most profitable markets witnessed in 2016 as traders put aside the bearish years of 2014 and 2015. Apart from July and October, oil has had a bullish path as the improving demand along with the cut-back in supplies benefitted the mother of all commodities. Crude oil is on course to record a bullish year as OPEC made a historic announcement at the end of September when it agreed to cut supplies among members. With the coming of a hot summer and predictions of a harsh winter, natural gas was also on a bullish path.
In the agro markets, coffee leads the bullish race striving forward to record the highest prices since January 2015. Erratic weather patterns in Brazil along with the improvement of demand from major consuming nations were prime attributes for the rise. Other agro-commodities including corn, cocoa, cotton, soybean and wheat presented profitable opportunities during the year.
Bullion: According to many analysts including Citigroup and Commodities Market Outlook, the precious metals prices are forecasted to fall in 2017 as appetite for safe haven status will ebb with predictions of further rise in interest rates from the US. Increasing demand from China and India will inevitably provide a strong support but prices will factor in the rate hikes rumor as and when markets are fed with it. Once Trump assumes office in January and his inflationary policies, such as infrastructure spending, could also have a mighty effect on prices of gold.
Copper: Copper forecasts have turned for the better as the recent uptick in the prices has met with a round of increased demand from China. The demand from China has been the strongest in contemporary times and is predicted to continue in 2017. According to the International Copper Study Group, the global copper demand is set to advance about 1.5%.
Oil: The prices of oil are expected to rise further in 2017 as markets readjust after an era of abundant supply that outpaced demand. The OPEC decision to resume limiting oil production is an imperative attribute as we head into the New Year. Having stumbled to a nine-year low of $26.04 per barrel in February, the market fundamentals have overturned as demand has finally succeeded to outpace the supply.
Agro-Markets: The agro-markets are forecasted to rise modestly as a decline in the grain prices is expected to offset a rise in prices for other food commodities. Added impetus in the energy prices – a key cost component in agriculture could push the agro prices even higher than forecasted. The risks of potential damage from La Nina weather patterns have also diminished.
Commodities have made a comeback this year after situations in the first quarter threw many assets to a quarter century low as the oil markets show signs of rebalancing after a glut, and base metals rallied on the back of rising demand. Many analysts are of the view that the oversupply that was induced by the high prices in the first decade of this century is finally being balanced. However, traders should adopt a note of caution by reviewing the developing stories for every commodity in question as we enter a new phase of trading in an era of fast market developments.
Wishing you all a wonderful and prosperous 2017!
Vivek Risal is associated with Mercantile Exchange Nepal Limited in the capacity of Manager in Research and Development Department. He can be contacted at r&[email protected]