The economic engine is slowing down, says analyst

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The current commodity markets are a key economic indicator, and as many are well aware, in the commodity world the key indicator is crude oil.

Where crude goes, so does the rest of the commodities, says Errol Anderson, president of ProMarket Communications Inc., based at Calgary, Alta.

As things look according to Anderson, there’s  a general commodity pullback across the board — and it’s happening globally.

“Where we’re seeing it coming from is the slowdown in China,” he explains. “For instance, we just had renewed information from China on their manufacturing, and it was big mess. So China, I believe, is actually going into some form of a recession — and China basically purchases over 50 per cent of global commodities.”

The grain market specifically is taking it hard right now, as we’re seeing pullback on soybeans and corn, and have been watching the wheat market struggle for some time now. Canola as well is included in crops that have taken quite a major hit.

We can hopefully expect the markets to subside a bit as panic selling and forced margin call selling de-escalades, says Anderson, but for now, we’re seeing heat and fire on the screens. (Story continues below interview)

As for as expectations for crude oil and diesel fuel prices go, Anderson thinks there’s more weakness to come. However, despite what the central banks say, he thinks interest rates are going to have to come down.

“There’s a pathway here where the economic engine is starting to slow down. There is some concern, and we’re going to have to start fueling up this market. I’m not a real believer of inflation right now — I think we’re really in a deflationary pathway right now. But again, the marketplace doesn’t really believe it.

“Once the market decides that oops, we are starting to weaken, we will see a little bit of realization that we’ve got a new world, and a new price level on some of these commodity markets.”

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