Annualised performance data in euros at 30th April 2023.

The recent disinflationary trend has weighed on the commodities sector. Energy prices have fallen sharply this year while agricultural commodities and industrial metals have flatlined. When looking for signs of a turn in this sector, we believe China will ultimately be the catalyst. As China slowly re-opens after their covid lockdown, we should start to see a gradual pickup in commodity demand later this year. Chinese construction activity has started to increase, Chinese households are awash with cash and Chinese exports are also accelerating. This combination should lead to higher commodity prices. When you add to the mix our expectation for a continued decline in the U.S. dollar, there is potential for a recovery in agriculture, industrial metals, and energy prices. Perhaps this will be a 2024 event.

As the saying goes, economic activity is energy transformed. If Jerome Powell delivers a soft landing in the United States and if the Chinese re-opening gathers pace, this should be reflected in the price of crude oil. This could be the key risk for markets in 2024 in our view and one we are watching closely. A sharp rise in energy prices could tip the global economy into a prolonged slowdown or recession next year. We continue to recommend holding an allocation to energy in client portfolios, either via commodities or equity exposure.