Why Commodities Collapsed Amid Stock Market Crash

Commodities from oil to copper joined Monday’s free fall in global stocks, extending recent weakness that could have foreshadowed the current stock sell-off.

Brent crude, the global oil benchmark, for September delivery fell 2.1% to an eight-month low of $75.18 a barrel on Monday morning before recovering somewhat in the afternoon. Brent has fallen about 14% over the past month.

Other commodities also fell Monday. Copper, a key material used in construction and electronics, fell 4% early in the day. Live cattle prices initially fell 2%, coffee prices fell almost 4% and even gold — long considered a safe haven for investors during times of financial turmoil — fell more than 2% before regaining some value on Monday.

Were commodities predicted to decline?

In contrast to stocks, which spent the first half of July at record highs before falling, broad commodity markets have been on a downward trajectory for the past month. The S&P GSCI, a compilation of 24 different commodity prices, has fallen nearly 10% during that period. The index has had just nine positive days in July.

In short, concerns about weakening demand for the physical goods that power the global economy — fuels, industrial metals, agricultural products — explain the decline in commodity prices in recent weeks.

Economists often look to commodity markets as a leading indicator of the health of the global economy. Concerns about slowing global growth and that the Federal Reserve may have waited too long to cut interest rates have finally unsettled stock market investors.

It is no coincidence that commodity prices began to fall after the US government released its June employment report on July 5. The report revealed a weakening situation in the US labor market and included downward revisions to employment growth data compared with the previous two months.

Concerns about a slowdown in global economic growth intensified on Friday after the release of U.S. jobs data for July showed the country’s unemployment rate unexpectedly rose to a three-year high.