Commodity prices are broadly lower ahead of the EU summit and
a disappointing unemployment rate in Germany, which jumped to
6.8%.
Equity markets in the euro zone are falling on growing fears the
EU summit starting in Germany will be a bust, with no decisive
plan from EU leaders.
In fact the really scariest trend I noticed online this
morning is traders and media outlets comparing the EU to the 2008
Lehman Brothers collapse.
Whatever you think about the Federal Reserve forcing U.S.
banks to recapitalize with TARP -- it did prevent a mess similar
to the euro zone. Granted the U.S. actions are not without
problems as a result of the bailout.
Traders continue to position their portfolios to risk-off,
sending money into safe haven plays such as the U.S. dollar. The
U.S. dollar index is holding strong at 82.74 this morning.
Traders have every reason to write off the EU summit, but the
European Commission President Herman Van Rompuy drove a stake
right through the heart of the EU summit all by himself this
week. A statement that provided a high level outline of the euro
zone fiscal reform indicates a "concrete game plan" would need to
"wait until December". The question begged is: what about the
€125 billion earmarked from Italy's, Spain's, Germany's and
France's heads of state just last week?
Because not all commodities are equal in the sense of being
dependent on growth like crude oil (
USO
,
quote
), copper (
COPX
,
quote
) and gasoline (
UGA
,
quote
) are, you need to understand what drives individual
commodities.
For example corn (
CORN
,
quote
) has been on the move this week, not just because it's a
staple in diets and is also used for fuel; regions growing corn
are in a severe drought. The moment significant rain returns to
these regions, the price of corn will drop as the drought premium
is removed.
Other commodities can be affected by the global growth engine,
but growth commodities will remain under pressure as key
developed nations like the euro zone fall further into a
recession. This will affect nations dependent on euro zone
trade such as China and other Asian countries which will feel the
headwinds of the euro zone as if their own.
Bottom line
: The EU summit will be a pivot point for growth commodities. A
favorable event for these commodities would be some kind of
concrete actionable plan. On the flipside, kicking the can down
the road to the December meeting will continue slowing growth and
send growth commodities such as crude oil and copper
lower.
