Commodity Traders Prepare for Price Spikes on Forecasts of El Nino Conditions

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Commodity Traders Prepare for Price Spikes on Forecasts of El Nino Conditions

Commodity Traders Prepare for Price Spikes on Forecasts of El Nino Conditions


You can tell the economy is starting to grow again when the only complaint you hear in the City of London is that there aren't enough cabs around because of that 'bloody tube strike'.

It's AGM season and most of the Chief Executives I know are hoping that the 'shareholder spring' doesn't return to hit them in the pocket again.

Having sat through Barclays' meeting on 24 April though, it's clear that members of the public are still seething about corporate excess, so I'd expect some fireworks over the next few weeks.

Even David Moyes would be amazed to see the size of the pay packages handed to some executives who, at times, appear to be frankly useless.

Strong UK Growth Figures Reflect Rosier Outlook

There was more good news for the economy this week as official figures showed that GDP increased by 0.8% in the first quarter, beating the 0.7% growth seen in the fourth quarter of 2013.

Although there has been much talk of a bubble building in the housing market, things are starting to look healthier across the country.

There are signs that businesses are in the mood to invest and there is also a more encouraging backdrop for UK households, with wage growth finally starting to outpace inflation of 1.6%.

Despite the ever-improving backdrop, don't expect a rise in interest rates anytime soon.

The Bank of England has the luxury of low inflation to fall back on and I'm told they would like to see sustained rises in real wages and productivity before taking the plunge with a rate rise.

The Bank's peers over at the European Central Bank are under considerably more pressure to act, however.

The Head of the International Monetary Fund, the charismatic Christine Lagarde, was the latest to urge the ECB to provide further stimulus to try and inject some momentum into the region's modest recovery.

While her comments have annoyed the head of the ECB, Mario Draghi, I'm told by my City contacts to expect some form of quantitative easing sooner rather than later.

Investors Prepare for a Storm in Commodity Prices

In terms of commodities, the latest reports from US derivative regulators have shown that investors betting on a fall in the gold price have doubled their positions over the last month.

Gold has outperformed expectations this year, hitting a six month high last month as tensions in Ukraine escalated.

A gradual improvement in the European and US economies is, however, likely to ensure that we drift lower from here.

Commodity investors also need to prepare for El Nino, the weather system in the South Atlantic that could wreak havoc with prices.

The latest predictions are that a weather event could occur as soon as July, which could flood copper mines in Indonesia and cause droughts in crop growing regions.

The commodities which tend to show a price spike during an El Nino include nickel, zinc, soybeans, cocoa, cotton and coffee.

There is no certainty that an El Nino will develop, but some spread betting investors are getting prepared.

That's all for now, I'm off home before the tube workers decide to go on strike again.

Until next time...




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