Commodities Outlook: Watch the Dollar and Copper Demand
30 September 2020
Portfolio Manager and Commodity Strategist Roland Morris discusses the macro trends he’s watching in the near term as well as the commodities he’s following closely through the remainder of the year.
Jenna Dagenhart: Hello and welcome to Asset TV. Joining us now to share his commodities outlook is Roland Morris, Portfolio Manager and Commodity Strategist at VanEck. Roland, what macro market factors are you keeping a close eye on in the near term?
Roland Morris: To me, right now, the most important trend, a macro trend, is where the dollar's headed. The dollar's fallen about 10% from its March highs. I believe that's a trend that has started that can continue. And a weakening dollar is very, very important for both global growth, emerging market performance but maybe most importantly, from a commodities perspective on demand. A weakening dollar can really support global growth outside the U.S. It reduces the burden of dollar denominated debt around the world, allows economies outside the U.S. to ease even further. And there's quite a bit of pent up demand, particularly after this COVID crisis. So, to me, the dollar trend is important, and I do believe it has started a new trend to the down.
Jenna Dagenhart: And sticking with prices here, what about inflation and deflation? How are you watching those factors?
Roland Morris: Well, again, that's going to be important. If we were to have a real snapback in the global economy post the COVID crisis, particularly with all the central bank liquidity fiscal support from governments—and it isn't really just a U.S. phenomenon. It's all around the world where we've seen an expansion in fiscal deficits and very easy monetary policy. It would be very reasonable to think of a potential inflationary boom, where you had strong growth, and you had a Fed, after this most recent announcement that they formalized a new inflation target, and refocusing their efforts on lower and lower unemployment. It would be very conceivable that we could end up with an inflationary boom, a strengthening global economy, pent up demand post COVID, tremendous amounts of liquidity and fiscal support. And, to me, that could really drive some surprise inflation sometime in the next two to three years. That would be very good, obviously, for commodities. And we've been in a world without inflation for such a long time that that would be a really big shift in market sentiment.
Jenna Dagenhart: No matter if it's inflation or deflation, both of those could be good for gold.
Roland Morris: Yes. Gold, it's really a currency alternative, and it is a safe haven store of wealth. So, gold actually could be the sector within commodities that is really a win-win. It could be that with all this fiscal stimulus and monetary stimulus, we've really had a boom in financial assets, and we could be, potentially, creating some sort of a financial bubble. And if that was to burst, you could have the opposite of an inflationary boom. You could actually have a deflationary problem. And that's not unconceivable either.
Really what we've done is I think we got ourselves in a situation with all of this stimulus where we really could have either one happen. I think it's probably more likely we get an inflationary boom, but you can't roll out some sort of financial problem that creates a deflationary shock, again like COVID was. So, really gold does well in either of those scenarios. It's an excellent hedge against inflation, but it also can be a safe haven asset in times of financial stress. So, yes, gold is really potentially a win-win investment in this environment.
Jenna Dagenhart: Yeah, it will be interesting to see, too, what plays out with global manufacturing activity.
Roland Morris: Yeah, I think with all the stimulus around the world, we could have a boom if we get a vaccine, and we get a snapback, and global growth and all the pent-up demand around the world from being locked up because of COVID. So, there's a real potential for several outcomes here that will be very market moving in my opinion and have some real potential major shifts in investment flows.
Jenna Dagenhart: Finally, Roland, based on your outlook for the factors that you just mentioned, which commodities are you most interested in following through the end of the year?
Roland Morris: Fundamentally, I think people always talk about copper as “Dr. Copper”. Copper is very important. Supply is tight. There's sort of a long trend towards electrification around the world. So, it's benefiting from new demand drivers like electric vehicles, automated vehicles, wind, solar—all those things are driving demand for industrial metals, whether it's battery or just copper wiring. And copper's probably the best one, I think, for people to watch, to get a feel for how the global economy's doing. And on top of that, there are some supply issues in copper. And so, copper supply is tight, and demand continues to look like it's rising.
Jenna Dagenhart: Well, Roland, thank you so much for your time. Great to have you.
Roland Morris: Well, thank you for taking the time. And I enjoyed our talk today.
Jenna Dagenhart: And thank you for watching. That was Roland Morris Portfolio Manager and Commodity Strategist at VanEck, and I'm Jenna Dagenhart with Asset TV. To receive regular updates from VanEck's experts, please visit vaneck.com/ucits/subscribe.