Trusty Copper Signaling More Dis-Inflation, But It’s Not Alone by Bryce Coward, Gavekal Capital
With the economic weakness in China permeating Asia and EMs generally, we should not be at all surprised to see copper making a new cycle low, and it is (chart 1). But Dr. Copper is hardly alone in providing a dis-inflationary signal. Indeed the broad-based weakness in commodities (charts 2-4), recent strength in bonds (chart 5), and outperformance of growth counter cyclicals – staples and health care stocks (chart 6) – are all sending the same message: the world appears to be getting more dis-inflationary, not less. This is perhaps one reason that Knowledge Leaders – highly innovative companies – have outperformed by such a wide margin so far this year (charts 7-8). Knowledge Leaders tend to have less debt and through innovation have insulated themselves from broad competition, both good things in a world where top line growth may be hard to come by.