Commodities and fixed income exchanged signals over the past week, leading commodities to fall behind international equities in the DALI Asset Class Rankings. We examine where weakness within commodities could be seen moving forward.
Check out this week's Major Index and DALI Overview (3:33).
While the past week’s action has been primarily dominated by US and international equities, commodities have been buoyed by Gold GC/ moving to new highs. Despite Gold’s positive action, commodities had already shed nine signals following last Wednesday’s action to firmly find itself in the 3rd position. International equities didn’t see a notable tally signal uptick but now sit in second, ahead of commodities by 12 tally signals. The asset class responsible for the loss in signals within commodities is fixed income as it picked up seven signals to inch closer to currencies in 5th.
Energy commodities were the primary culprits for the loss in signals for the broader asset class last week. This has been the case since international and commodities have been tied for more than a month now, but energy’s recent loss has been against fixed-income proxies. Among the recent RS chart changes to favor fixed income over commodities involves the Invesco DB Energy Fund DBE versus the iShares Barclays 7-10 Year Treasury ETF IEF on a 3.25% scale. After reversing into Os in June the RS chart fell to give an RS sell signal during last week’s trading, favoring the 7-10 year treasury ETF, over energy commodities. Before this, the RS chart had been on an RS buy signal for more than 12 months.
Within the DALI Asset Class matrix, energy commodities now reside in Os against all fixed income related proxies, meaning fixed income is favored in the near-term. This also puts the fixed income group in a position to gather further signals from commodities if either fixed income can continue to improve or commodities may move lower.
To provide where individual subsectors of commodities currently sit relative to the broader fixed-income asset class, the RS charts below show the Invesco DB Precious Metals ETF DBP, Invesco DB Base Metals ETF DBB, and Invesco DB Agriculture ETF DBA, against the iShares Barclays Aggregate Bond ETF AGG on a 3.25% scale RS chart.
As noted in the opening, precious metals – primarily gold GC/ – have buoyed the broader asset class within DALI. As of Tuesday’s close, precious metals proxies are responsible for more than one-third of the asset class’s total tally signal count within DALI. The RS chart of DBP versus AGG is also the only chart below to still maintain a column of Xs and favor the commodity proxy over the fixed income.
Meanwhile, the RS charts comparing base metals and agriculture to AGG have been in Os since July and May, and action in August have brought additional Os. Though both RS charts still favor the commodity proxies in the long term, further outperformance by AGG could bring about a potential signal change.
Within the DALI Asset Class matrix, base metals and agriculture maintain little to no near-term relative strength but continue to maintain their ranking in the top half of the matrix based on long-term RS buy signals (the default ranking metric for the matrix tools). Precious metals continue to maintain near and long-term relative strength against other asset class proxies, and downside within this subsector may be another way that weakness for the broader asset class may be shown moving forward.
