The recent increase in commodity prices has been very prominent. Although vaccine research and development have been introduced repeatedly and the future prospects are more optimistic, the potential risks or even blows caused by this round of commodity price increases cannot be taken lightly.
Inflation, global commodities, and economic recovery, among these words, who will take over whom, and who will promote whom? It seems that only by clarifying the inner logic can we further confirm the issue of the “sustainability” of commodities.
Commodity financialization is a US dollar strategy and tactic. Along with the reality of the US epidemic and the pressure of investment, the tendency of public opinion on the status of the US dollar to be unstable, subverted, or replaced is more prominent. However, looking at the essence through the phenomenon, through the logical reasoning of the depreciation of the US dollar, the rise of US stocks, and the rise of US debt, it seems that the foresight of the US dollar strategy and the flexible and effective tactics can be seen.
Since the epidemic, the extremes and extremes of global delivery are obvious. On the one hand, the U.S. has led to extremes in its investment. Its fiscal deficit hit a record high of 3.14 trillion U.S. dollars, and the U.S. money supply was 19 trillion U.S. dollars. It is still a fact that the U.S. dollar has sufficient liquidity, but the potential pressure on the U.S. has been effectively resolved. Therefore, the U.S. dollar makes full use of market share advantages, dominant power privileges, experience and ability priority mechanism, a full range of market and product combinations and diversified mobility.
In particular, the U.S. dollar directly covers and implements its unique pricing power and quotation power to various sectors around the world, and the market presents a financial and commodity linkage effect and a proliferation stimulus effect. The stability of the U.S. dollar, the stock index soaring, the soaring commodity, and the bond market turn are crossed, and the intertwined situation is dazzling and chaotic. The financialization of commodity concepts is a new trend, new format, new structure, new trend, and new pattern for the dollar to consolidate its foundation and expand its power.
On the other hand, global interest rates have generally fallen, central banks in various countries have loosened monetary competition, and market liquidity has increased. But so far, the epidemic has not subsided, the economy has not yet recovered, commodity prices have risen out of reality, and the expansion of the financial-oriented situation has caused commodity prices to soar and plummet, but this has exceeded the analysis or expectations of financial theory and logical benchmarking.
Commodity logic and cycles are forced to be a financial framework, making big finance, hyperfinance, and full finance face new challenges and new structures. At present, no other country or currency can create and create this situation, because it is true that qualifications and capabilities lag behind and lag behind the United States and the US dollar, and the US dollar’s international monetary system and the international financial system’s monopoly remains unchanged.
Commodity speculation is a speculation of market sentiment. It is precisely because of the advancement of the financialization of these commodities that market sentiment, public opinion, and short-termization are very serious, and speculation and speculation are an indisputable fact. Therefore, the bear market plummeted by 20% is no longer able to measure the prospects, and the bull market surged by 20% can no longer predict the future. The situation of excess liquidity or flooding is irrepressible and restrained.
Starting from June 2020, domestic bulk commodities have continued to rise. Among them, copper rose by 38%, paper rose by 50%, plastics rose by 35%, aluminum rose by 37%, iron rose by 30%, glass rose by 30%, zinc alloy rose by 48%, and stainless steel rose by 48%. Up 45%, IC up 100%. At the end of February 2021, the prices of raw materials were completely out of control, and they jumped wildly by 20% and 30% respectively. Some specialty papers even jumped by 3,000 yuan at a time. The overall price increase of raw materials such as plastics, textile materials, copper, energy, electronic components, industrial base paper, etc. confuses the production plans of terminal brand manufacturers, and the phenomenon of production shutdown due to price suspension has occurred.
In 2021, the price of copper rose by more than 70,000 yuan per ton after 14 consecutive trading days in 2021, reaching the highest level in 9 years. Since April last year, the price of Lun copper has soared from 5294 US dollars to the current 9092 US dollars, an increase of 71%; , Plastics, stainless steel and other raw materials have increased by more than 30%; electric brands have increased prices due to incredible raw material prices for bulk commodities.
The market speculation through the economic form or public opinion orientation is obviously the result of the hype atmosphere and extreme technology, because the actual production and consumption demand of these products and raw materials has not yet been presented, but due to economic losses or psychological insecurity, the losses inside the embankment are compensated for outside the embankment. Speculation that stimulates desires by simple thinking is inevitable, because capital turnover, liquidity scale, and cycle shielding are all reasons for short-term speculative strategies and tendencies, but irrationality is the main reason, and this kind of market may not be sustainable. On the contrary, in the future, the original normal logic and circular laws of commodity prices are bound to deteriorate. The abnormality, extremeness, and abnormality are risk pressures and possible crises.
Figure 1: The price trend of copper, iron ore fines and aluminum futures from 2020 to now
Through this kind of market situation and phenomenon, the situation that the macro economy or the micro market will face in the future is worthy of in-depth consideration. In particular, the above-mentioned particular, complex and even strategic issues deserve more attention and attention. I worry more about the future. After all, there are national competition plans and plans behind the market. In particular, the current international competition pattern and environment are basically unchanged. The economic strength and financial power of major developed countries are not in a weakened or diminished state. On the contrary, they are strengthening recovery and even strengthening the leading process.
Looking at future development trends from two dimensions
It is expected that the economy will be suppressed in the future. The current upward adjustment of the world economy is relatively clear. Although the background and reality of this round of global economic ups and downs are not bad, the economic upward cycle is clear, the sudden and heavy suppression of the epidemic is sudden and heavy, and the economic recovery is logical and realistic. However, the booming and worsening of the above-mentioned commodities may restrain or even contain the economy, and the uncertain factors of the economic outlook are complex and uncertain. The current US economic indicators and prospects can prove to be certain. For example, the PMI has jumped to 60, the unemployment rate has dropped to 6.3%, and economic growth is positive. This is enough to show that the US commodity financialization strategy has economic foundation and future prospective support. On the contrary, other economies in the world will face economic repression. The economic recovery that eases production and production due to the epidemic may be restrained and controlled due to the cost and price of goods, which may further highlight the leading or superiority of the US economy.
In addition, the U.S. dollar’s coverage and monopoly of commodities is already a fact, and the U.S. long-term strategy orchestrates the direction of short-term indicators is very clear and clear, and economic volatility or adverse factors should be prepared. According to the current environmental factors and the complex situation of relations, if commodity prices restrict economic recovery, turbulence in overseas markets will continue to intensify, and external shocks will not be conducive to normal domestic economic recovery, which is an adjustment of international relations. In addition, the current geopolitical and economic and trade relations have not eased, and even worse than expected, the prospects may increase. The transfer of problems and the evolution of the transfer of crisis mode is worthy of prevention and vigilance.
Figure 2: Trends in U.S. inflation and U.S. federal benchmark interest rates since 2020
Forecast 2. The policy is expected to be adjusted. As the economic trend changes, the potential risk of commodity rise is the advent of rising inflation. With the rapid and magnitude of commodity rise, high inflation may occur quickly, which poses a greater challenge to the current low interest rate and negative interest rate environment. There are already expectations in the market that the upcoming March meeting of the Federal Reserve may distort the operation (OT), or may adjust the interest rate of deposit reserves, which will directly involve or affect the interest rate level and structure of the US bond market.
At present, the Fed’s excess reserve ratio interest rate is 0.1%, and it is expected that the increase to 0.15% in the future may drive the interest rate for overnight repurchase operations to increase by 5 basis points from 0%. The two important pillars of US dollar hegemony are the exchange rate and the interest rate. At present, the US dollar exchange rate is comfortable, self-sufficient, and depreciated to ensure effective success. However, the US dollar interest rate is still passive, weak and weak. Therefore, the forward-looking nature of the US financial strategy lies in the restoration and dominance of the US dollar interest rate hegemony, not in such a simplistic view of the market. In particular, the rise in oil or commodities is the basic logic to boost inflation. Gold’s plummet reversal and high rise will adapt to the characteristics of inflation. It is an inevitable method and strategy to adjust. The preparatory or design between the rise and fall principles is the secret of masters.
It is expected that sensitive issues such as the global epidemic, economy, finance, and commodities are in the stage of integration and reorganization. Insufficient preparation and understanding of the world is the biggest risk, and the United States is well prepared, fully prepared, long-term, and comprehensive. It is worthy of vigilance. Complicated situations such as economic competition, national competition, currency competition, discourse competition, institutional competition, and model competition are unprecedented. New models of crises and new logic of risks are worthy of in-depth analysis, prudent prevention and response.