I think the strong move in commodities stocks today has more to do with continued weakness in the U.S. dollar than it does with any renewed faith in growth in the global economy. After all the U.S.-China trade war doesn’t look any more settled today than it did last week.
But the dollar, as measured by the Dollar Spot Index (DXY) against the basket of currencies from U.S. trading partners, was off again today falling another 0.06%. The dollar index has been in an almost steady decline since May 30 and is now down 1.5% in that period.
Commodities and commodity stocks are good hedges against a falling dollar since the price of the commodity in dollars goes up as the dollar falls. Add that to earlier weakness in many commodity stocks and you get moves like these today, June 11:
Lithium producers Albermarle (ALB) and SQM (SQM)closed up 3.54% and 3.55%, respectively. Copper producers First Quantum Minerals (FQVLF) and Southern Copper (SCCO) finished ahead 2.33% and 2.34%.
The Materials Select Sector SPDR ETF (XLB) closed down 0.07% today but I think that’s a result of the ETF’s weighting toward chemical companies rather than raw materials commodity stocks. Freeport McMoRan Copper & Gold (FCX) is the heaviest weighting in a commodity producer in the ETF portfolio and that weighting is just 2.38%.
Oil moved very modestly didn’t share in the move higher today as uncertain about OPEC production plans balanced any “dollar effect.” U.S. benchmark West Texas Intermediate was shied 0.13% to $53.33 a barrel today and international benchmark Brent crude edged higher by 0.1% to $62.35 a barrel.