Commodities clinch best year since 2016

Commodities are set for the best annual performance since 2016, with crude to copper posting annual gains.

The Bloomberg Commodity Spot Index has hit the highest since November 2018 as trade tensions ebb, a risk-on mood sweeps markets, and the dollar eases. The gauge is now up 11 per cent in 2019.

Commodities are benefiting from an end-of-year surge as the outlook for 2020 appears, at least at present, to be more promising than conditions that prevailed for much of this year. The US-China phase-one pact – expected to be formally concluded next month – hinges on the Asian nation increasing purchases of farm goods. In addition, prospects for a deal have helped spur restocking by raw-materials users, according to Oversea-Chinese Banking.

“Renewed optimism from the USChina trade deal is driving demand expectations higher,” said Howie Lee, an economist at the Singapore-based lender. “Stockpiles are low going into 2020 and, with the expected pickup in demand, a lot of industry players find themselves short of inventories.”

Raw materials have also enjoyed a tailwind from a weaker US currency, with the Bloomberg Dollar Spot Index retreating 1.8 per cent this month to the lowest level since July. After three interest rate cuts this year, the US Federal Reserve is expected to hold monetary policy steady over 2020.

Concerns among investors about the possibility of the onset of a US recession – which hurt commodities earlier this year – have eased.