2010 Commodity Market Outlook:
Fundamentals Will Matter
Morgan Stanley & Co. Incorporated
For important disclosures, refer to the Disclosure Section, located at the end of this report.
Peter G. Richardson
Morgan Stanley Australia Limited
Commodity Markets: 2010 Outlook
Fundamentals will matter: We expect correlations will
weaken into and through 2010. Fundamentals will matter,
more so than they did in the liquidity-induced rally of
2009. Investors, as a result, should be much more
discriminating in 2010. We want to own commodities with
We want to own commodities that are levered to the EM:
Our economists are forecasting healthy global GDP
growth of 4%. Importantly for the commodity space, they
see EM GDP growth of roughly 6.5% against developed
country growth of 2%.
We expect inflation-risk to rise next year: The weighty
public sector debt burden will pressure some central
banks to continue printing. Commodities have historically
outperformed equities/bonds in inflationary environments.
The USD won’t weaken as much in 2010: A weaker USD
provided a lift to commodities in 2009. While weakness
against EM currencies is likely next year, we doubt that
commodities will find the broad-based support from a
weaker USD as they did in 2009.
Our Favorite Trades For 2010:
Long gold through to the beginning of rate hikes
Long deferred oil (Dec 2011)
Long corn/short beans into US planting intentions
Long sugar through April
US & China’s Contribution to Demand
Growth From 2003 - 2008
Crude Oil Aluminium* Copper*
Source: IEA, USDA, CRU, Morgan Stanley Commodity Research
* From 2005 - 2008
Macro Risks – What Would A USD Rally Mean?
A weaker USD in 2009 provided support to the entire
commodity complex. Into 2010, our FX strategy team is
now calling for a stronger USD (vs. developed w