Latest news with #BCOM
Yahoo
23-05-2025
- Business
- Yahoo
Beyond the Benchmarks: Exploring Diversification Within Commodity Markets
In today's volatile markets, achieving true portfolio diversification means looking beyond traditional asset classes. While indices such as the Bloomberg Commodity Index (BCOM) or the S&P GSCI Index (SPGSCI) offer a convenient and accessible benchmark for commodities exposure, investors can unlock further diversification potential and potentially enhance returns by exploring niche commodity markets that are not represented in the main commodity indices. This article introduces some of the contracts available on our platform that could match this profile. Commodities are widely recognized for their diversification benefits, offering a potential hedge against inflation and often exhibiting low correlations with traditional asset classes. However, many investors focus primarily on broad commodity indices, overlooking the potential for enhanced diversification within specific commodity sectors. Incorporating smaller commodity markets, characterized by reasonable liquidity and distinct supply/demand drivers, can further optimize portfolio diversification and potentially unlock attractive risk-adjusted return opportunities. To illustrate the diversification benefits, let's first examine the historical correlations between BCOM, the S&P 500 Total Return index (representing U.S. equities performance), and a representative fixed income index (here the Bloomberg U.S. Treasury index). As the data demonstrates, the BCOM has exhibited a varying degree of correlation with both the S&P 500 and treasury markets. Correlation with equity markets has been strong at times, but we have also witnessed strong reversals and periods of near zero, or even negative, correlation. This means that when stock prices fall, commodity prices would rise or remain stable, providing a counterbalance to portfolio losses. Similarly, during periods of rising interest rates, which negatively impact bond prices, commodities can offer an alternative source of returns as they are driven by unique supply and demand dynamics, often influenced by global macroeconomic factors, inflation, weather patterns and industry-specific trends. This historical pattern of low correlation underscores the potential diversification benefits of incorporating commodities into a portfolio. By including assets that don't move in lockstep, investors can potentially reduce overall volatility and improve risk-adjusted returns. This is particularly important during periods of market turbulence, when diversification can help mitigate losses and preserve capital. While indices such as BCOM and SPGSCI provide broad commodity market exposure, relying solely on these benchmarks may leave valuable diversification potential untapped. Let's consider a few examples of our listed commodity markets that do not qualify for inclusion in the main commodity indices yet offer diversification potential and a reasonable liquidity profile: Dairy (DC) futures: Dairy prices are driven by a complex interplay of factors, including weather patterns affecting milk production (heat stress can reduce output), feed costs (such as corn and soybeans) and global dairy demand. This unique combination of drivers sets milk apart from other agricultural commodities and offers diversification potential within the agricultural sector. Seasonality also plays a role, with milk production typically higher in spring and lower in fall. Lumber (LBR) futures: Linked to the housing market, lumber prices are influenced by housing starts, renovation activity and commercial construction. These factors are often driven by interest rate policy and general economic conditions, making lumber a useful diversifier within the broader commodity complex as well as a potential leading indicator. There is also a seasonal component to lumber prices, with more construction activity after the winter as the weather improves. HRC Steel (HRC) futures: U.S. domestic HRC steel, essential for construction, manufacturing and automotive industries, provides exposure to a broad range of industrial activity. Its price dynamics are linked to raw material costs (iron ore, coking coal), global economic growth and specific industry trends, such as infrastructure spending and manufacturing output. This makes HRC steel a valuable diversifier, offering exposure to a different set of economic drivers than traditional financial assets. Lithium (LTH) futures: Essential for batteries used in electric vehicles, consumer electronics and grid-scale energy storage, lithium provides exposure to the rapidly growing electric vehicle and renewable energy sectors. Lithium prices are influenced by supply chain dynamics (mining and refining capacity), technological advancements in battery technology and government policies supporting clean energy adoption – Lithium Commodity futures offer exposure to a high-growth sector with distinct drivers. Ethanol (CU) futures: This biofuel's price is tied to corn and sugar prices (the key feedstocks), government regulations (such as blending mandates and subsidies) and gasoline demand. This creates a distinct profile within the energy complex, offering diversification away from traditional fossil fuels. Furthermore, ethanol prices can be influenced by agricultural market conditions and policy changes, adding another layer of diversification potential. Propane (B0) futures: Used for heating, cooking and as a petrochemical feedstock, propane demand is highly sensitive to weather patterns, particularly during winter months. This seasonality offers a diversification angle, as propane prices can fluctuate independently of broader energy market trends. Supply disruptions and inventory levels also play a significant role in propane price dynamics. To demonstrate the potential diversification advantages of incorporating these commodities, the correlation table below showcases historical relationships between these markets, the BCOM and S&P 500 Index. As the table shows, the correlation of these futures with BCOM (representing a diversified commodity exposure) and the S&P 500 is very low across the board. Commodity code Asset Correlation with BCOM Correlation with the S&P 500 DA Dairy 0.085 0.067 LBR Lumber 0.096 0.162 HR HRC steel 0.111 0.069 LTH Lithium 0.069 -0.011 CU Ethanol 0.313 0.005 B0 Propane 0.449 0.100 Source: Bloomberg. Correlation based on daily return correlation over the past 3 years. How accessible are these commodities? Understanding market accessibility and liquidity is crucial for investors. The table below provides average daily volume (ADV) and open interest (OI), both in number of contracts and notional USD value. Notional value refers to the total dollar value of trading activity based on the prevalent price of the commodity. The table also indicates the primary trading method for each contract (screen-based or OTC block). Commodity code Asset ADV OI Trading activity Contracts $m Contracts $m DA Dairy 2,122 74 22,984 801 Screen LBR Lumber 1,234 19 6,623 104 Screen HR HRC steel 1,162 22 37,938 715 Hybrid LTH Lithium 361 3 35,020 321 Blocks CU Ethanol 4,169 308 32,787 2,424 Blocks B0 Propane 10,835 383 158,525 5,608 Blocks Source: CME Group. ADV data for 2024 full year. OI as of April 23, 2025. $m notional value computed based on April 23, 2025, spot month settlement price. Block trades are subject to rule 526. While broad commodity indices (also listed as CME Group futures) offer a solid foundation for portfolio diversification, investors can also choose to look beyond these benchmarks. By incorporating smaller commodity markets, investors can refine their diversification strategies, potentially mitigating portfolio risk and improving overall performance further. These commodity products offer unique exposure to idiosyncratic supply/demand dynamics and can play a valuable role in portfolio diversification efforts. All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience. Derivatives are not suitable for all investors and involve the risk of losing more than the amount originally deposited and any profit you might have made. This communication is not a recommendation or offer to buy, sell or retain any specific investment or service. All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience. CME Group Inc. does not have control over the content, accuracy, quality, or legality, of any third-party product, service, or content advertised on this webpage. The presence of such advertisements on this webpage does not signify any association, partnership, or endorsement of the third-party or its content by CME Group Inc. Full disclaimer Copyright © 2025 CME Group Inc. Sign in to access your portfolio
Mid East Info
07-04-2025
- Business
- Mid East Info
Commodities Weekly: Tariff-led recession pain triggers sharp reversal
– Ole Hansen, Head of Commodity Strategy, Saxo Bank This past week, we saw a justified meltdown in risky assets as markets absorbed the blow of Trump's far larger than expected tariffs on all its major counterparts, sparking threats of retaliation and a broad selloff around the world on concerns that a global trade war on this scale and magnitude will drive an economic slowdown—not least in the US, where inflation forecasts have spiked, and sentiment among consumers and businesses has fallen sharply during the past couple of months. There is a general understanding of why Trump wants to reshape the global economy, with his primary goal being the reversal of a two-decade trend of US companies moving production overseas—especially to Asia—to capitalise on cheaper labour costs, which, in turn, has boosted their stock prices but contributed to domestic job losses and economic stagnation in certain sectors and parts of the nation. This shift has had significant impacts on American manufacturing and the broader economy, as well as its ability to be self-sufficient in key materials. Economic implications: short-term pain, long-term uncertainty What Trump delivered on this so-called 'Liberation Day' was an economic war declaration likely to cause chaos across global supply chains, while in the short term raising the risk of an economic fallout, hurting demand for key commodities, with energy and industrial metals being the sectors most at risk. While stock markets crumbled, investors sought shelter in secure government bonds, and for a change not in the US dollar, which normally acts as the go-to currency during times of heightened uncertainty. Instead, the euro, yen, and especially the Swiss franc have served as safe havens, while the US dollar weakened broadly. The narrative driving the US dollar lower is one of reduced portfolio allocations to the US as the policy will bring most disruption to the US economy in the near term. BCOM's year-to-date gain cut in half The Bloomberg Commodity Total Return Index (BCOM) trades down 4% on the week, and following a brutal week the annual gain has been cut in half. As per the table below, the growth- and demand-dependent sectors of energy and industrial metals suffered the steepest losses; the precious metal loss was limited by gold's resilience while the agriculture sector traded mixed to lower. On an individual level, major losses were recorded in crude oil and refined products, copper, silver, and cotton, while a handful of different commodities barely scraped even, led by natural gas, gold, corn, sugar, and not least wheat, the best performer benefiting from a weaker dollar. Gold's safe haven credentials grow despite setback Gold's safe-haven role temporarily received a setback with spiking volatility driving another burst of deleveraging similar to, but so far nowhere near the same scale seen during the early stages of pandemic panic back in 2020 when gold over a ten-day period slumped by 13% before recovering strongly as inflation worries and stimulus helped create fresh demand. Gold prices hit a record high on Thursday before the mentioned deleveraging helped drive a USD 100 correction. However, the combination of heightened global economic tensions, the risk of stagflation, a weaker dollar combined with collapsing US real yields as nominal yields fall and inflation expectations rise, will in our opinion continue to support bullion, and we maintain our forecast for gold reaching USD 3,300 this year. Adding to this a market that is now aggressively positioning for the Fed to deliver more cuts this year—at current count a full 100 basis points of easing by year end. The recent transfer of gold from around the world to US warehouses monitored by the COMEX futures exchange in order to get supplies behind a potential tariff wall may now see a part reversal after bullion was made exempt, potentially weighing on prices in the short term. Gold's correction from a fresh record has once again been relatively shallow with several key levels of support yet to be challenged. The most important in our opinion being an area around USD 2,950 which apart from being the February top also represents a 0.382 Fibonacci retracement of the run-up from late December. A rejection before and at this level would signal a very weak correction within a strong uptrend. Silver slumps on rising recession fears and COMEX indigestion Silver, meanwhile, was heading for an 8% weekly slump, with most of the damage being inflicted by economic growth concerns as silver derives around 50% of its demand from industrial applications. The weakness was led by selling in the New York futures market after a fact sheet distributed by the White House stated that bullion (gold) and 'other certain minerals that are not available in the United States' should not be subject to reciprocal tariffs. With silver and platinum imports accounting for the bulk of US consumption, traders concluded that these two metals would not be impacted, and with that, the tariff premium on futures prices in New York compared with spot prices in London collapsed, hurting an already weakened sentiment. A 51% year-to-date increase in silver flows to COMEX-monitored vaults now faces the risk of a partial reversal, potentially adding supply to a market already weakened by short-term recession concerns. In addition, prices were hurt by a collapse in the COMEX futures premium on speculation silver, just like bullion, would be exempt from tariffs after a fact sheet from the White House potentially hurting industrial demand which accounts for around 50% of silver's total demand. Thursday's slump most certainly qualified for its worst since December 2023, driven by a double whammy of economic worries hurting its industrious credentials, and not least a complete deflation of the COMEX futures premium after a fact sheet provided by the White House raised doubts about silver being included in tariffs. Silver's dramatic slump extended into Friday's session, and with gold holding steady around USD 3,100, supported by the dollar and yield slump, the gold-silver ratio has surged above 100 ounces of silver to one ounce of gold, the highest since 2020, potentially offering some relative value once the dust from this latest setback settles. In the short term, traders will focus on support just below USD 31, where we find the 0.618 retracement of the run-up since late December, as well as the 200-DMA and trendline from February last year. Crude prices tumble on recession risks and accelerated OPEC+ production hike Crude oil, meanwhile, was heading for its worst week in a year, with Brent crude tumbling more than 11%, in the process slumping through previous strong support in the USD 68 area. China's aggressive countermove to US tariffs, announcing their own 34% duties on US goods, with Europe likely to follow soon, all but confirms we are heading towards a global trade war—a war that has no winners, and which will hurt economic growth and, with that, demand for key commodities such as crude oil and refined products. At this stage, we have not only entered a demand destruction phase, but also supply destruction from high-cost producers, which over time will help cushion the fall. The weakness was further accelerated by an OPEC+ surprise decision to accelerate planned production hikes starting in May. To understand this strategy, it's crucial to examine the WTI forward curve, which is showing prices below USD 60 from next January and onwards. A recent Dallas Fed survey of US producers revealed that an average price of USD 65 is needed to profitably drill a new well. With crude oil prices under pressure, US production risks stalling sooner than anticipated, potentially allowing key OPEC+ members to regain lost market share. Partly or potentially fully offsetting this production increase are the impacts of sanctions and tariffs on countries like Venezuela, Iran, and Russia. These nations may struggle to maintain production in the coming months, providing an opportunity for GCC producers, particularly Saudi Arabia, the UAE, and Kuwait, to increase output and reclaim market share both within OPEC and globally. Copper increasingly exposed to a binary tariffs event The New York-traded High Grade copper futures reached a record closing high on Thursday at USD 5.1120 a pound, marking a culmination of a month-long surge that has triggered a major dislocation between US prices and the rest of the world. A development driven, not by strong fundamental demand, but mostly by a phenomenal arbitrage window that has been opened due to Trump's push for tariffs on imports of the metal. Ahead of a potential announcement of tariffs, a decision that could still be months away given the time an investigation carried out under Section 232 of the Trade Expansion Act normally takes, traders have been rushing copper to the US in order to log in premiums of up to 13% relative to prices in London, a move that has helped tighten the rest of the world where more than 90% of global demand is consumed. It's worth noting that holding a high-grade futures position at a 13% premium to London has raised binary risks in the market, meaning prices could suddenly drop by more than 10% if no tariffs are introduced or surge even higher if the level is 25%, in line with those applied on steel and aluminum. Crude oil: Range-bound despite growth concerns Crude prices have settled into a relatively tight range near the recent lows, weighed down by fears Trump's aggressive trade policies may trigger a global trade war that would negatively impact global growth and demand. In addition, the prospect of rising supply from OPEC+ next month has also been weighing on prices at a time when the US administration has been talking down oil prices, potentially, if successful, scoring a major own goal. We believe these concerns are overstated, not least considering the risk of lower output due to sanctions and several of the OPEC+ members having pledged additional cutbacks to compensate for exceeding quotas, a move that if carried out would offset the planned increase. Iran is once again in the crosshairs of the US administration after Treasury Secretary Scott Bessent recently said the US would ramp up sanctions on Iran, a producer that despite sanctions in the past four years managed to increase production by around 1.1 million barrels a day. A clear sign of that threat was seen this week when the US penalised a Chinese refinery and its CEO for allegedly buying Iranian oil. With this in mind, we see no major change in OPEC+ production in the coming months, instead a redistribution among its members with GCC producers being the main winners, allowing them to increase production without hurting prices. In addition, it has become increasingly clear that Trump's 'Drill, baby, drill' cannot be achieved without hurting output from high-cost producers, many of which are located in the US, and production growth will likely slow, thereby supporting prices while handing market share back to OPEC.
Bloomberg
20-03-2025
- Business
- Bloomberg
Total Return Switch to SOFR for BCOM (bloomberg Commodity Index)
The total return variants of the BCOM index family and related indices reflect the returns on a fully collateralized investment in BCOM, combining the returns of BCOM with the returns on cash collateral historically invested in 3 Month U.S. Treasury Bills (T-Bills). After the announcement the BCOM collateral rate will switch from T-Bills to SOFR effective April 2026, we welcome you to join this webinar to provide more details on this change. Learn the new index calculation formula and how this will effect the operational aspects of BCOM. Discussion Topics: Operational Change Treatment of Product Licenses Speakers Kenneth M Hoefling Global Head of Index Management and Production for Commodity, FX, and Crypto Indices Bloomberg Ken Hoefling is the Head of Index Operations for Commodity, FX, and Digital Asset Indices at Bloomberg, where he leads the management and execution of index methodologies across multiple asset classes. With extensive expertise in index design, development, and operations, Ken plays a key role in ensuring timeliness, accuracy, integrity, innovation, and risk management of Bloomberg's index offerings. Prior to joining Bloomberg, Ken managed core benchmarks of commodity and futures-based at S&P Dow Jones Indices. He also brings a wealth of trading experience, having served as a Senior Equity Trader on the portfolio trading team and as a NASDAQ market maker at Pershing LLC. His career began at Dain Rauscher Wessels, where he worked as a NASDAQ market maker and agency trader in the firm's New York office. Dario Valocchi Multi Asset Product Development Bloomberg Jim Wiederhold Commodities Product Management Bloomberg
Yahoo
12-03-2025
- Business
- Yahoo
CME Group (NasdaqGS:CME) To Launch Bloomberg Commodity Subindex Futures Pending Regulatory Review
CME Group recently announced the launch of Bloomberg Commodity Subindex futures, slated for March 31, pending regulatory approval. The inclusion of these futures on CME may be a factor in the company's 11% share price movement over the last quarter. During this period, the company demonstrated robust growth with a 230% year-over-year increase in average daily volume of BCOM contracts and a 64% rise in open interest. Moreover, CME reported strong financials, with Q4 revenues growing to $1,525 million and a net income increase to $875 million. Additionally, a 9% rise in its dividend announcement also underscored CME's shareholder commitment. Meanwhile, the market experienced a 3.7% decline amid inflationary concerns and recession fears. Despite the broader market's struggle, the CME's diversification into commodities and cryptocurrency exchanges, like Solana futures, may have played a role in their outperformance compared to market trends. Upon reviewing our latest valuation report, CME Group's share price might be too optimistic. Ready For A Different Approach? Trump's latest tariffs commencing in March 2025 are putting pressure on the stock market. Discover which defensive stocks and companies with strong pricing power and economic moats are the best positioned to withstand the trade war. Over the past five years, CME Group's total shareholder return has reached 92.32%, reflecting its significant growth amid evolving market conditions. This period has seen the company expand its product offerings, such as the introduction of BCOM Subindex futures and Solana futures in early 2025, which may have contributed to CME's broader appeal. Additionally, the launch of micro grain and oilseed futures contracts also highlights CME's efforts to diversify its contract portfolio. In the same timeframe, CME has strategically returned value to shareholders through several means, including a robust share repurchase program worth US$3 billion announced in December 2024. This was further complemented by regular dividend increases, such as the 9% rise in February 2025, demonstrating the company's commitment to its investors. Despite these successes, the company faced challenges, like significant insider selling in recent months, adding complexity to its long-term growth narrative. Hold shares in CME Group? Setup your portfolio in Simply Wall St to seamlessly track your investments and receive personalized updates on your portfolio's performance. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include NasdaqGS:CME. Have feedback on this article? Concerned about the content? with us directly. Alternatively, email editorial-team@ Sign in to access your portfolio
Bloomberg
06-03-2025
- Business
- Bloomberg
Commodities tend to outperform when equities go down
In our blog from a year ago, we highlighted how commodities tend to outperform in late cycle economic environments while other asset classes underperform. When other asset classes get pulled out with the tide, commodities can be an anchor in a portfolio by moving against in a risk-off scenario. Looking at the past six decades, exhibit 1 demonstrates the historical uncorrelated nature of commodities prices to other major asset classes found in typical portfolios. There were only a few instances since 1960 when commodities tended to have a higher than 0.4 correlation to equities (highlighted in light blue) – these episodes have occurred after big global shock events such as GFC and the Covid crisis. Most recently correlations have been moving toward zero across the major asset classes. Looking through a historical macro lens, there have been examples when the unique performance attributes of commodities really shine when equity markets fall or even move sideways. In 2025, there are plenty of reasons why a market participant may want to reduce an allocation to equities and diversify by adding or increasing an allocation to commodities, such as elevated stock valuations, impact from tariffs imposed by the US administration or sinking market sentiment. Commodities do not have the same drivers of performance as equities. Commodities do not have earnings estimates to beat or rely on what analysts think a stock price will do over the next 12 months. Commodities prices fluctuate based on the current point in time situation, already this year there are several themes – Tariff Effects and Peak Supply – playing out as was highlighted in our 2025 Outlook. A broad commodities benchmark like BCOMTR has had a strong start to the year verifying its role as a diversifier in a portfolio. If equities lose momentum this year, commodities could take the charge forward as deflationary momentum has stalled and could potentially reverse. Exhibit 2 shows how commodities and equities performed during the quarters when inflation rose the most over the past four decades. Only one quarter showed commodities had a negative performance, but this was in 2022 after commodities rose 25% the prior quarter. Looking back to the start of BCOM history in the 1960s, equities fell in 16 years and had an average drawdown of 14% while commodities averaged a positive 6% return over these same equity down years. Traditional diversifiers like fixed income have not behaved as expected since 2021 with correlations to equities over the last four years in positive territory for much of the time. This is a change from the typical negative correlations seen over the past century. Other diversifiers like private equity have gained in popularity and performed well but do not have the liquidity of commodities markets. Broadly, market participants are still under allocated to commodities, even though participation has been picking up. Simply going long commodities or tactically going long individual or sector commodity exposures has worked well recently, particularly for softs, precious metals, and livestock. Sophisticated market participants sometimes gain exposure through a long/short expression to take advantage of carry dynamics between different commodities. Shorting a commodity in steep contango like wheat or a precious metal could provide a pickup of at least 5% a year based on the current futures curves in Exhibit 3. The rise in gold prices challenges the traditional relationship between gold, USD and real rates. Strong central bank buying, futures positioning that has risen close to all-time highs, and big inflows of over $5 billion into physical backed gold ETFs over February 2024 have all helped push the price of gold to all-time highs despite the traditional fundamentals. If gold breaches the $3000 mark, at least a pause in price action could be warranted. Gold may continue its path higher if there is sustained safe-haven demand and cautious market sentiment. During uncertain times, diversification is a dear friend and uncorrelated assets such as commodities could be the diversifier market participants continue to consider when thinking about risks for 2025. The diverse nature of commodities sectors and individual commodities allows market participants to initiate long/short exposures based on specific drivers of performance differentiated within the broad commodities universe which provides opportunities for expression outside of a simple long-only exposure. If equities move into a bear market after recent multi-year outperformance, market participants could find opportunities with a diversifier in their portfolio like commodities.
