Plunging prices of commodities are eerily reminiscent of the 2008 global financial crisis and indicate the world is headed for a deep recession, says Societe Generale.
Copper has plummeted 20.6% since its May peak, while aluminium is down almost 18%, and nickel 30.5%. Prices of agricultural commodities, including corn and soybeans, also have fallen steeply.
“This is not so much a canary in the coalmine as a rout,” said Albert Edwards, a global strategist at SocGen in London in a research note. “Just as in mid-2008 I now see the recessionary gorilla charging towards us out of the mist.”
Copper prices in particular are a bellwether of the state of the global economy, he says. In 2008, falling prices of the metal presaged a collapse in inflation from 5.5% to below zero in just a few months, he added.
That’s why he predicts “the big surprise’’ in coming months will be the collapse of inflationary pressures around the world. US CPI food prices will plunge into deflation, just as they did in 2008, he says.
“All these data are consistent with the global economy plunging into a deep recession,” says Edwards. “Soft-landers claim that this is just excess speculative froth being blown off, but the bulls said that too in 2008 and look how that ended up.”
Prices of agricultural commodities have plunged despite the impact of the Ukraine war on supplies, which prompts Edwards to predict more downside for oil, which has fallen almost 14% in the past month.
A “cyclical bust awaits,’’ he concludes, and adds that it ”will feel very much like a full-blown return to deflation.’’
•By Kevin Hamlin