Commodities across the board are signaling there are major risks to global growth. Whether it is copper hitting a 5-and-a-half year low, or oil or even soft products, grains and meats, it is clear that commodities are sending clear economic warning signs. Now we have the results of the Greek election, with the anti-austerity party Syriza taking power, as well as the failure of peace talks in Ukraine and a Russian offensive that will no doubt bring more growth slowing sanctions. Don’t just blame the dollar for commodity weakness; it is what the dollar is saying about growth in the rest of the world that really matters.
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Crude closed near a 6-year low on Friday as King Salman of Saudi Aribia, in his first kingly proclamation, assured the markets that there would be no change in oil ministers or oil policy. What that means is OPEC price war continues. So against this backdrop, the Greek election and more Russian sanctions are making things look even more bearish.
Syriza and the Independent Greek political parties are going to form a coalition government, so it looks like Greece will either get some debt relief from the European Union or we may have to start pricing in an exit from the Eurozone.
We also have to start pricing in the impact of more sanctions. Russia launched an attack according to the United States and indiscriminately targeted civilians in a rocket attack on the city of Mariupol over the weekend. The action makes it very likely that new sanctions will be imposed on Russia. More sanctions at a time when the situation in Greece is uncertain does not bode well for commodity demand.
Gas prices are still falling, according to Trilby Lundberg. She reported that the average price of a gallon of gasoline fell 13.3 cents in the past two weeks, which is the lowest level since late April 2009. Prices for regular grade gasoline fell to $2.07 a gallon in the survey.
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