By James Saft
(Reuters) – The rebirth of U.S. manufacturing may be the key which unlocks the puzzle of the divergence of commodity prices from equity markets.
If so, commodity prices may be in for more pain, U.S. growth may be better than expected over the longer term and U.S.-based companies stand to reap the benefits.
One of the most interesting trends over the past two years is the way in which agricultural, metals and energy prices have trended downward even as equity prices rise. This is especially hard to reconcile given that economic growth, while only moderate, has been positive. The Thomson Reuters CRB index of commodities and energy has fallen about 10 percent since last September, during which time Germany’s DAX is up 14 percent, the S&P 500 a bit more and the Nikkei 225 a whopping 50 percent.
It is certainly true that equities have been helped by official intervention, with the Bank of Japan and the Federal Reserve in full quantitative easing mode and the European Central Bank standing behind its pledge to save the euro. Still, though the support might be more diluted, why would commodities and energy be less susceptible to QE than equities?
In part, argues Manoj Pradhan, economist at Morgan Stanley, this is a supply side story, but more interestingly it is also about a huge structural shift under way in the global economy.