The commodities-led volatility that hit stock markets hard last week has made a reappearance. North American indexes were pummelled on Wednesday afternoon, with energy stocks and materials leading the declines.
In afternoon trading, Canada's S&P/TSX composite index was down 225 points or 1.7 per cent, to 13,417. In the United States, the S&P 500 was down 17 points or 1.2 per cent.
Commodity producers were merely following commodity prices themselves, which endured their most severe one-day tumble in nearly a week. Crude oil , which had shown signs of recovering earlier this week, fell below $98 (U.S.) a barrel, down more than $6 or 5.8 per cent.
But the declines were widespread. Copper fell 3.2 per cent, coffee fell 3.3 per cent, wheat fell 5.3 per cent and silver fell 8.7 per cent. Gold was down as well, but the decline was less severe: It fell to $1,500 an ounce, down $16.50.
Meanwhile, the Reuters/Jefferies CRB index of 19 commodities fell 3.1 per cent, its sharpest downturn since May 5, when investors recoiled from central bank moves in Europe and India, along with tighter trading restrictions from the New York Mercantile Exchange.
This time, the Mercantile Exchange is back at the centre of the volatility - though now it relates to the fact that its parent, CME Group Inc., halted trading in crude oil, heating oil, and gasoline futures after prices for gasoline declined sharply, triggering circuit breakers. Trading subsequently resumed.
But there is more at work here. Energy commodities fell because the U.S. Department of Energy reported that inventories for oil and gasoline were on the rise, suggesting that demand isn't as strong as prices would have suggested.
Meanwhile, the Organization for Petroleum Exporting Countries said in its monthly report that last week's five-day losing streak for the price of oil, which slid a total of nearly 15 per cent, was "inevitable" given the backdrop of a good balance between supply and demand.
As well, there are renewed concerns about upcoming moves by central banks after Bank of England's governor said that inflation is "uncomfortably high" and Bloomberg News reported that officials there signalled that interest rates may rise later this year. Rising prices in Germany and China bolstered this view.
Rising rates could send the U.S. dollar higher - and since most commodities are priced in U.S. dollars, they fall.