The Continuous Commodity Index recently fell to its lowest level since August 15, 2012. While the brunt of that slide was due to fear of a premature ending to US quantitative easing, the soaring US Dollar provided added the selling pressure. Some traders suggested that many commodities were also weakened by the fears that another Washington fiscal debacle would put pressure on demand. But while some recent US economic data has been soft, the overall pattern seems to point to recovery – even with those inside the Beltway seemingly doing everything in their power to obstruct that process.
We feel that any outcome aside from a continuing resolution delaying a final decision will be positive, and that forced spending cuts will not be a long term-negative development. Instead, the markets could quickly spin those cuts into a positive as that outcome would force a needed reduction in US spending. It might also confirm that the US government is so bloated that forced cuts of this type won’t be cutting anywhere near muscle or bone! Seeing a final end to the Washington sideshow and getting beyond a very serious cloud that hung over the market for several years might provide a significant improvement in global sentiment. If we are wrong, it probably won’t be with the market’s reaction to the forced spending cuts; it will probably be on the capacity of US politicians to actually step up and “Govern.”
In conclusion, any deal (even a poor one) should remove a significant layer of uncertainty, seriously deflate the Dollar and give many physical commodity markets a very significant boost!