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A Second Wave Sinks Commodities in September

This article is reprinted from the Indexology blog of S&P Dow Jones Indices.

The headline S&P GSCI fell 3.6% in September on the back of growing concern regarding the prolonged economic impact of a second wave of the COVID-19 pandemic. Across sectors, both industrial metals and energy contracted, while the agriculture and livestock sectors benefited from cursory signs of the return of demand from China.

The S&P GSCI Petroleum fell 7.0% in September. An increase in OPEC supply since August and concerns of a new demand hit as coronavirus cases rise have weighed on oil prices. The oil market continues to emerge from the largest and most abrupt shock in its history, following the shutdown of the global economy caused by the global COVID-19 pandemic. The focus has now shifted to the market rebalancing, as well as the longer-term question regarding whether the shock represents a temporary aberration or a structural shift in supply and demand dynamics.

The S&P GSCI Industrial Metals reversed course in September, falling 2.2% after a strong August performance. The index was positive YTD, after a 9.8% gain for the third quarter. The two metals most closely linked to economic data, S&P GSCI Copper and S&P GSCI Aluminum, both had muted performance, reflecting at least a slight deterioration in economic sentiment and a strengthening U.S. dollar.

The S&P GSCI Gold dimmed in September by 4.2%, after reaching a new all-time high in August. Strength in the U.S. dollar and a slight drop in risk appetite pulled most asset classes down, as market participants reassessed the global economic outlook and may have liquidated some positions in favor of holding cash. Gold was still one of the best-performing commodities in 2020, up over 21% YTD.

The S&P GSCI Agriculture shuffled higher in September, up 4.0%. Bookings by top soybean buyer China were robust during the third quarter, pushing the S&P GSCI Soybeans up 7.4% for the month and into positive territory YTD. Coffee prices plunged as market participants weighed the prospect of bloated warehouse stocks in Brazil entering the market. The S&P GSCI Coffee fell 14.0%.

A recovery in demand from China as well as the discovery of African swine fever in Germany pushed the S&P GSCI Lean Hogs sharply higher in September, up 19.6%. China, South Korea, and Japan have banned pork shipments from Germany, which will likely redirect export demand to the U.S. over the following months.

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