How Do Commodities Affect Today's Stock Market?

The relationship between commodities and the stock market is a topic of great interest and relevance for investors and financial analysts. Recent developments in the commodities market, including fluctuations in prices and supply dynamics, have had a notable impact on stock market performance. This article delves into the specific effects of commodities on the stock market, drawing insights from recent news and data.

Surging Commodity Prices Raise Concerns: On June 15, 2023, U.S. wheat, soybeans, and corn prices experienced significant surges on the Chicago Board of Trade. These price increases were driven by concerns over yield prospects due to continued dry weather in key Midwest crop belt areas. The surge in commodity prices can directly influence related sectors and subsequently impact stock market performance.

Glencore's Sale of Cobar Copper Mine: Glencore, a global mining and commodities trading company, recently closed the sale of its 100% stake in the Cobar copper mine in Australia's New South Wales. Metals Acquisition acquired the mine for $775 million in cash and $100 million in shares. This strategic move aligns with Glencore's portfolio simplification strategy, focusing on lower-cost, long-life assets. The deal establishes a stake for Glencore in Metals Acquisition, allowing them to offtake 100% of the copper concentrate produced at the mine.

Oil Prices and Energy Stocks: The decline in oil prices, with a 44.8% drop over the past year and a 15.4% decline in 2023 alone, has impacted energy stocks such as Exxon Mobil (XOM) and Chevron (CVX). The performance of these multinational oil and gas conglomerates is closely tied to the outlook and price action of crude oil. Lower oil prices add constraints to companies operating in the oil and gas industry, affecting their profitability and stock prices.

Iranian Crude Exports and OPEC+ Dynamics: Despite international talks to limit Iran's nuclear program, Iranian crude exports exceeded 1.5 million barrels per day (bpd) in May, the highest monthly rate since 2018. This rise in exports comes as OPEC+ members, including OPEC and Russia, are cutting output to support the oil market. Analysts have highlighted the need for further production cuts by OPEC+ due to rising supply offsetting demand growth, leading to a downward revision in Brent oil-price forecasts.
Grain Prices: Dry conditions currently affect around 57% of corn and 51% of soybean crops, representing a 12% increase over the previous week. Concerns have been raised regarding a probable loss in yield as a result of these weather conditions. On the Chicago Board of Trade (CBOT), corn prices jumped 2.6% to $6.23 1/4 per bushel, while soybean prices increased 2.9% to $14.28 1/4 per bushel. In addition, CBOT wheat prices increased 5% to $6.61 1/2 a bushel.
Outlook for Markets and Commodities: Both emerging markets and commodities have performed strongly, owing primarily to the weakness of the US dollar.
Historically the US dollar been negatively associated with emerging economies and commodities. The weakening of the US currency has made it easier for emerging markets and commodities to soar. Risk-on currencies such as the Australian and Canadian dollars have broken out versus the US dollar, enhancing the chances for these industries. If the US currency continues to fall, it might unleash huge uptrends in commodities and develop market shares, benefiting traders.