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PARIS: Sharp falls in commodity prices and a rise in the dollar mark
the ending of one of the biggest ever speculative bubbles and a
change in investor sentiment as the global economy slows, analysts
say.
The US economy, the world’s largest, was
already running out of steam when it was badly hit last year by the
subprime or high-risk home loan crisis which sparked a credit
crunch, crippling business and activity overall.
Many investors believed that the crisis would be
confined to the United States on the view that Japan and the
eurozone, alongside emerging giants China and India, would take up
any slack.
Instead, global growth has been slowing and with
it demand for oil and other commodities which had been a virtual
one-way bet for several years as prices soared.
Oil topped a record $147 on July 11—but this
week it fell as low as $104 and looks set to test support at $100, a
level it broke through at the beginning of the year.
The crisis in Georgia and Hurricane Gustav did
no more than give oil a very modest boost when two months ago they
would have sent prices rocketing.
“If prices were only determined by supply and
demand, the downturn would not have been so rapid,” said Pierre
Terzian, head of the Petrostrategies magazine.
“Funds and [financial investors] participating
in the oil market have pretty much reduced their exposure since
June,” said Harry Tchilinguirian, oil analyst with French bank BNP-Paribas.
Turnover in the market has fallen by 20 percent,
he said, with sentiment changing as investors price in a slowdown in
global growth and demand for oil.
“A lot of people, after surprisingly good
first quarter growth figures . . . became more optimistic that the
American crisis would not spill over,” he said.
“But . . . it [soon] became clear that the two
main eurozone economies [Germany and France] were facing a downturn,
alongside Japan.”
Tchilinguirian said investors then saw that this
would in turn hit China and Asia as a whole—the main drivers in
the commodity markets—because of their dependence on exports to
the United States.
While growth remains strong, China has still
slowed distinctly, with Beijing even considering plans for a
stimulus package, while India’s expansion rate has slumped to a
three-year low.
Analysts said that in this context, investors
have increasingly turned to holding cash, especially the long out of
favour dollar, because of the US unit’s longstanding safe haven
status.
At the same time, if the US economy has been
first into the trough, it is also most likely to recover
first—although there are few signs of any turn at the moment.
“In times of uncertainty, you hold cash,”
said Tchilinguirian.
Other analysts put it simply—what goes up,
must come down, and vice versa.
“If what we are seeing is a correction of
excesses [in commodity prices], there are also fundamental factors
behind their rise [earlier],” said Veronique Riches-Flores of
French bank Societe Generale.
“In the medium term, growth in demand will see
a rebound in prices.”
-- AFP
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