Dollar weakness triggers a ripple effect in global markets, but questions remain about the equity correction and interest rate trajectory.
After months of resilience, the commodity markets are finally responding to a weakening U.S. dollar. This shift is bringing renewed energy into the space, with broad participation across agricultural products, metals, and energy (excluding natural gas). A softer dollar typically enhances demand for dollar-denominated assets, and we’re beginning to see that dynamic play out more clearly in recent price action.
Metals, which had been building momentum on inflation hedging and supply concerns, now appear extended. The recent rally in gold, silver, and copper may be running out of steam—at least temporarily. While the macro environment still supports the long-term thesis for metals, short-term positioning looks stretched. A consolidation or pullback here would be healthy and consistent with typical market cycles.
Meanwhile, in the agricultural complex, signs are emerging that the downdraft may be ending. Corn, soybeans, and wheat are showing technical basing patterns, and the fundamental picture—driven by weather uncertainty, geopolitical logistics, and export shifts—has become more balanced. It’s still early, but the tone has clearly shifted from bearish momentum to cautious optimism.
Bond markets are under renewed pressure as commodities move higher. The narrative is shifting toward “higher for longer” in terms of interest rates, especially if inflation expectations start to firm again. A rebound in commodity prices tends to stoke those concerns, and bond yields are responding accordingly. I’m expecting continued weakness in bonds, particularly on the long end, as markets price in the potential for more persistent inflation pressures.
Equities, for their part, remain in correction mode. Despite the most recent, well-publicized bounces, I’m not ready to say the worst is behind us. Valuations remain elevated in key sectors, and with rates climbing and liquidity tightening, there are still downside risks. The correction may be evolving but calling it over feels premature.
The broader takeaway is that markets are adjusting to a changing macro (read: fiscal) landscape. The dollar’s decline is setting off sector-specific reactions, and while some moves may be nearing exhaustion, others are just getting started. For traders and investors, this is a time to stay nimble, reassess positioning, and focus on relative strength rather than broad beta exposure.
Stephen Coleman 4-23-2025