Commodities extended their worst monthly slump since 2011, and the dollar advanced against emerging-market peers as the Federal Reserve (the Fed) moved closer to raising interest rates. Stocks and bonds fell in Europe and the region’s currency strengthened.
Crude oil led the Bloomberg Commodity Index down 0.3 percent by 6 a.m. on Friday in New York, extending the gauge’s decline in July to 10 percent. The dollar headed for the biggest monthly gain since January, while a gauge of emerging-market currencies dropped to a record low and Russia’s ruble weakened before a monetary-policy decision. German bund yields rose four basis points and the Stoxx Europe 600 Index halted a three-day gain.
The dollar’s ascendance amid rising bets on a US rate increase in September has spread across financial markets, hurting commodities already in retreat on supply gluts and slowing growth in China. Emerging markets have been a chief casualty, while stocks in the US and Europe are still poised for their biggest monthly gains since February, buoyed by earnings and deals.
“It’s been a bit of perfect storm for commodities markets,” said Fiona Boal, director of commodity research in London at Fulcrum Asset Management, which manages $3.6 billion in assets.
“There are general concerns about a further slowdown in China as one issue, and obviously the dollar. A strong dollar historically never seems to be great news for most commodity markets.”
The prospect of higher borrowing costs in the US strengthened the dollar and drove gold to the lowest in five years this month. Bullion slid 0.7 percent to $1,080.76 an ounce in London and is down 7.8 percent in July.
Losing appeal
Brent crude dropped 1.3 percent to $52.60 a barrel and is down 17 percent in July for a third month of losses. Crops from wheat to corn and soybeans are set for their worst monthly performance this year.
Commodities are falling out of favor with investors as demand in China, the biggest user of metals and energy, is faltering amid expanding inventories of copper and oil. Higher US rates curb the appeal of raw materials as they become more expensive for holders of other currencies.
The Bloomberg Dollar Spot Index was near the highest level since March, with the US currency poised to round out a month in which it appreciated against all but one of its 31 major peers.
Biggest gains
The biggest gains in July came versus currencies of commodity-producing nations. Colombia’s peso led declines with a 9.4-percent slide, followed by Russia’s ruble and Brazil’s real. Australia’s dollar came next, with a 5.6-percent slide.
Switzerland’s franc strengthened against the euro for a fourth straight day on Friday after the central bank posted a record first-half loss, fueling investor speculation it would struggle to curb gains in the currency. It added 0.5 percent to 1.05469 francs per euro.