Commodity markets stage a comeback

Energy and industrial metals prices have risen strongly since the middle of April, buoyed by further weakness in the US dollar and improved investor sentiment. Crude oil prices have also been supported by falls in US oil stocks and signs that US production is set to fall.

The US dollar has weakened and there has been a surge in US bond yields in the last month. The sell-off in the bond market followed the release of disappointing US economic data which suggest that the Fed is unlikely to start hiking interest rates until Sept. 

What's more, the rebound in oil prices has eased concerns about deflation and prompted a reassessment of the prospects for monetary policy. The recent fall in the dollar has, of course, been positive for commodity markets. But if we are right that the Fed will tighten monetary policy more aggressively than markets envisage, renewed dollar strength may act as a headwind for commodity prices. - notes Capital Economics