Analyzing the cross-section of commodities returns points to an extreme repricing in demand sentiment over the course of the summer, which has clearly been more significant than the recent deterioration in macro data, TDS senior commodity strategist Daniel Ghali notes.

More upside momentum in the cards

“Dramatic flows have likely exacerbated price action and correlations across markets, suggesting the quantitative read of demand sentiment may also be tinted by the one-way selling activity across all commodities, explaining the overshoot relative to macro growth data.”

“Still, we see risks that selling activity will not yet abate, with continued CTA selling expected in Copper and Zinc markets, potentially exacerbated by the acute risk of deleveraging flows. Market pricing in energy markets is also pointing to some dislocations, with energy supply risk premia disregarding the substantial and imminent geopolitical risk associated with Iran.”