Assessing the commodities market outlook
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SPEAKER: Welcome to Market Minutes, an audiocast to help you stay informed on key topics likely to affect markets, the economy, and investors.

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Text, Market Minutes Audiocast: Assessing the commodities market outlook. Rob Haworth, Senior Investment Strategist, U.S. Bank Wealth and Institutional Asset Management.

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Today's topic is assessing the commodities market outlook. Here's senior investment strategist Rob Haworth.

ROB HAWORTH: The new thing is direction of the dollar, right? I mean, the interesting thing over the last year is a stronger dollar is supposed to typically be a headwind. And that was true in some markets-- not all. Certainly not oil.

We've now seen that the dollar is starting to weaken, particularly as we start to see that the Fed is near its peak interest rates, while the European Central Bank is just getting started. So that decline in the dollar could actually be somewhat supportive for commodity prices going forward.

On the fundamentals side, I think we have more questions than we have answers. We know, for oil, for industrial metals, inventories are at low levels.

If we think about oil, they're at low levels in two ways. They're coming off their normal winter drawdowns, but they're still at rolling five-year low levels for inventories. And then you add in the fact that we've depleted the Strategic Petroleum Reserve by quite a bit, so our inventories are still at 2011 low levels. So the key for the U.S. and the direction for oil here is, if that supply condition becomes a constraint-- meaning demand picks up-- prices have to go up to rationalize that.

Now, that's a fair question, right? If we get a slowing economy, that certainly means some demand destruction and prices don't have to go up. I think the problem is oil prices are set in a global market and China is reopening. So they're on holiday this week.

We won't really get good data until March because of the way the Lunar New Year seasonals work in January, February. And so they tend to report January, February as a lump, as a block, rather than reporting on January and then on February. So that's the big swing factor, I think, for global demand, whether it's industrial metals or oil, is, how much does China reopen and get started building goods and traveling?

On the ag side, inventories are a little bit better and everything is going to depend a lot more on the growing season than it is on inventories at this point. So I think there's reason to be concerned about price rises in commodities. But we have had two pretty good years. So there's also reasons to wonder if price is going to stagnate a bit, particularly if the U.S. remains in this very slow growth mode.

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