Market Scenario: Caution continues in commodity prices
Business: Global stock markets have experienced volatility in the past two months. This trend is associated with high volatility and does not allow setting a clear direction in the short term. The MSCI World Index has been trading unchanged for two months with a negative trend, while the MSCI EM Index has fallen by 4.3%. However, developed markets such as the US have outperformed their Asian and emerging competitors. However, the continuous decline in commodity prices has started to cast doubts on the outlook for global stock markets.
International commodity prices have been falling this quarter. HRC steel prices are at an all-time low of around $700. Even the best-performing metal, copper, which is in high demand due to the emphasis on renewable energy and electronics, has fallen by 8% in the past three months. Iron ore prices hit a 22-month low. And crude oil fell to a 32-month low below $70. They seem to be a clear sign of a slowdown in global demand. The biggest concern at the moment is the slowing of the Chinese economy. Given China’s role as a global manufacturing hub, the decline signals potential trouble for the global economy. However, many multinational corporations are actively diversifying their supply chains to other emerging markets. This strategic shift provides some optimism that the global economic slowdown may not be as severe as the recent drop in commodity prices suggests.
The latest US data shows that the economy continues to recover but at a slower pace. GDP grew 3.1% year over year in the second quarter. Growth is estimated at 2.3% in the third quarter and 1.9% in the fourth quarter. These figures are commendable and reflect stable growth even at higher levels. In the long term, US GDP growth is expected to stabilize at an annual rate of 1.7% through 2025. In comparison, India’s GDP is expected to grow by 7% in FY21, with a long-term growth rate of over 6%. Against this backdrop, the market remains confident and does not see the long-term economic growth path as a key concern for equities in the medium to long term.
