Commodities: What's in store for 2019? – UBS

Giovanni Staunovo, analyst at Union Bank of Switzerland, suggests that even with concerns growing about macroeconomic conditions globally, global commodity investors still should not brace for another dire year of sub-zero commodity returns as UBS foresees a promising year defined by higher spot returns across the commodity board.

Key Quotes

“At first glance, a positive view on commodities might surprise investors. After all, global economic growth is expected to decelerate in 2019 versus 2018. But looking at the global growth profile a little closer, we reckon that the declining growth pace should trough in 1H19. A big chunk of the current slowdown in global activity took place in 2H18, with GDP growth likely to have decelerated by 0.4–0.5ppt y/y.”

“Commodity prices tend to be sensitive to changes in real activity. So, from a demand angle, this explains some of the weakness in broad indices (excluding gold) during 4Q18. Our base case is for downward momentum in activity to fizzle out this year, most likely in 2Q19. While our economists expect the US economy to slow throughout 2019, they believe the European and Asian economies will stabilize.”

“And once the market realizes that global economic growth will likely stabilize at around 3.7% in 2019, we believe attention will shift toward commodity-specific stories, lifting prices for the asset class. Specifically, most commodity markets, including crude oil, should be in deficit or in balance throughout 2019 due to a disciplined supply side and healthy demand.”