Even if China can still grow at 5% and the EUR area skirt a recession this year, past history shows commodities have predominantly followed US real economic indicators. Examples include the PMIs, that are a warning that if US growth slips into recession, commodity prices downside risks are likely to dominate.
As an example, the table below shows the strongest commodities correlations over the last 10 years have been with both the global PMI and US PMI data, in notable contrast to the weak links to China PMI.
The associated decline in broad money is most evident in the US, but the credit impulse has been notably negative in the EUR area as well. Soft real money growth, is a common factor outside of China, where money supply growth has remained fairly steady, as has inflation.
For now, there is no sign that global liquidity/credit is about to provide anything less than a negative drag on the commodities sector.
Recent events have left us more concerned that the US monetary may be facing a choice of two opposing objectives - financial stability and inflation - with one main policy tool, interest rates. This adds significantly to negative US risk asset potential. The chart below shows that US equities can explain over 50% of the variation in industrial commodities in the last 20 years, and lead commodities with a peak correlation of 25 trading days. - Deutsche Bank Strategy
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