This year is shaping up to be another decent one for investor returns, with healthy global GDP growth expected to support earnings, and falling interest rates putting mild upward pressure on valuation multiples. However, just 14 days into the new year and there has already been some surprises in the commodities sector.
Macquarie Asset Management’s Outlook 2025, which provides perspectives on the themes set to influence the investment landscape and performance of key asset classes for 2025, explores key macroeconomic views and the asset class implications across infrastructure, real estate, equities, and credit markets.
Group Head of Macquarie Asset Management Ben Way says this year’s outlook report reflects the firm’s view that financial conditions will continue to normalise in 2025.
In Outlook 2025, ‘Plan for growth, prepare for volatility’, Macquarie Asset Management outlines its expectations that global growth will remain healthy, driven by the resilience of the developed world consumer. The report highlights how the global economy has proven resilient in recent years despite several large shocks, which bodes well for growth in 2025.
However, although inflation fell sharply in 2024, driven by declining goods inflation, it could return this year. Macquarie expects higher tariffs and rising export prices on Chinese goods to play key roles, adding “the battle against inflation may not yet be over”.
“The past year demonstrated the skill of policy makers in navigating the post COVID inflationary surge as well as the resilience of financial markets, leading to strong returns for investors in listed markets,” Way says.
Commenting on global commodity markets to date, with a particular focus on crude oil, industrial metals, and precious metals, Saxo Head of Commodity Strategy Ole Hansen says just two weeks into 2025, there’s a notable trend emerging already.
“While it is not entirely unexpected – given the level of global uncertainty – to see gold building on last year’s rally to reach a one-month high, it is notable that among the top performers are three other metals: silver, copper, and platinum, all metals depending on industrial as well as investor demand,” Hansen says.
“So while caution is warranted when interpreting market trends in the early weeks of a new trading year, a notable theme has emerged: despite the headwinds from dollar and Treasury yield strength, investors are turning to tangible assets to hedge against persistent inflation risks, mounting fiscal debt concerns, and the risk of tariffs uprooting normal trading dynamics.”
The Bloomberg Commodity Index, which tracks 24 major commodities, has rallied by more than 3% despite multiple headwinds from dollar and yield strength to the risk of trade wars. Gains have been seen across all sectors except grains. Hansen also points out that crude oil, a market that has been singled out to struggle in 2025 amid ample supply and China weakness, has jumped out of the starting block.
“At the other end of the spectrum, agriculture commodities has softened amid a stronger dollar, while EU gas prices have tumbled 10%, despite a cold start to January and the cessation of supplies from Russia via Ukraine on 31 December,” he says.
Part of the explanation for these behaviours, Saxo’s Hansen notes, lies in year-end positioning. Leveraged traders had accumulated long positions in European Union gas, anticipating higher prices following the biggest November and December stockpile reduction since 2017. Meanwhile, copper and platinum futures positions flipped to net short in the final week of 2024. The unwinding of these trades has supported the current market moves.
“However, to fully understand these counterintuitive shifts, especially in metals and energy, given concerns about trade wars leading to slower growth and demand, other supporting themes have emerged at the start of the year, some of which point to renewed interest for commodities from, among others, macro-economic and technical focused investors,” Hansen continues.
As reported by Mining.com.au last week, silver was top performer in 2024 and at one point it surpassed gold’s advance with a 50% rally. The consensus appears to be that 2025 will be even better for the metal that is now more than just a store of wealth, but also in rising demand for its usefulness in clean energy applications.
Peak Asset Management executive director Niv Dagan told Mining.com.au the gold-silver ratio is coming closer together.
“Silver has actually outperformed gold,” Dagan noted.
The gold-to-silver ratio denotes how many silver ounces are needed to buy one ounce of gold. It shows how many multiples that gold is trading relative to silver. The typical range of gold to silver is between 50 and 70. As of 6 January it was up over 88 and had been as high as 91.79 in 2024.
Political challenges, policy changes
Macquarie’s Way says amid this backdrop, political challenges to incumbency and subsequent changes in governments and policy, combined with elevated geopolitical tensions globally, contrast with a more constructive outlook for the global economy this year.
The Outlook 2025 report notes how 2024 demonstrated the skill of policymakers in navigating the post-covid inflationary surge, as well as the resilience of financial markets, “leading to strong returns for investors in the listed markets”.
“(Last year) has been another year of strong returns for investors, with the classic 60:40 portfolio returning 18.2% year-to-date (YTD), after delivering a 13.3% return in 2023. Like last year, returns have been overwhelmingly driven by equities which returned 29.7% YTD, while bonds returned just 0.9%.”
Key to this better return environment has been inflation developments, with headline inflation rates across the developed world nearing 2%, allowing central banks to normalise monetary policies. While conditions are constructive, Macquarie maintains a longer-term view that there has been a transition to a ‘new normal’ where neutral rates are likely to remain elevated relative to the past decade.
At the same time, GDP growth has remained robust, with the US economy continuing its above-trend growth and the Euro area and UK economies seeing solid domestic demand and GDP growth after a challenging 2023.
According to Outlook 2025, falling interest rates and robust GDP growth form a generally positive backdrop for global equity markets.
“However, we’ve seen equity market performance disconnect from macroeconomic fundamentals many times over the past few years, making it ever more important to assess markets granularly. While earnings multiples are elevated in certain pockets of the market, the equity risk premium currently sits comfortably at its long-term average, suggesting equity investors should still get rewarded for taking additional risk in this cycle,” the report says.
“Despite higher interest rates making fixed income assets more attractive, global equities still offer many opportunities; and with policy expected to be volatile and geopolitical developments likely impacting returns, 2025 is a year where experienced and thoughtful active asset managers can add significant value for investors.”
In H2 2024, bond markets also improved materially as inflation moderated and central banks began normalising monetary policies. With a substantial degree of central bank easing already factored into most rates markets and credit spreads have tightened, looking ahead Macquarie says the the potential for aggressive price gains is more limited, although absolute returns should still be healthy by historical standards.
Trend towards de-globalisation
Macquarie notes that understanding the likelihood of structural changes in the global economy, driven by the trend towards de-globalisation and geopolitical developments remains crucial to successful investing over the next decade or more. Many of these factors will be in play this year, but short-term ‘return to normal’ dynamics are also likely to play an important role and will be crucial determinants of returns in 2025.
According to Hansen, regarding the uprooting of normal trading dynamics, Saxo is focusing on recent developments in US-traded futures markets, particularly for metals such as HG copper, silver, and platinum. In these markets, prices have risen to levels relative to spot prices that are not justified by the typical costs associated with funding and storage.
The New York futures market, with its deep liquidity and round-the-clock trading, is frequently used by traders and banks to hedge physical market commitments through short selling.
“However, Trump’s pledges to impose universal tariffs on all goods from all countries have raised concerns. Specifically, these tariffs could increase the cost of holding short positions for future delivery. If the required metals to cover a short futures position need to be imported, the additional tariff costs could make short selling significantly more expensive,” Hansen continues.
“In addition, the offshore deliverable CNY currency traded near a critical level against the dollar, with a break higher potentially triggering accelerated weakness as it may signal willingness from the Chinese central bank to let the currency weaken to mitigate the negative impact of US tariffs on Chinese imports. Concerns about a potential slump have prompted buying of physical metals, including copper, from Chinese traders, pushing the SHFE copper premium over London to a one-year high of USD 73/ton.”
HG copper futures, traded in New York, have risen strongly after once again finding support in the US$4 area before pausing with some resistance emerging around the 200-day moving average. Meanwhile, prices in London have only managed a 4% gain, highlighting the current pull in New York from traders covering short positions, both commercial and speculative, Hansen adds.
Write to Adam Orlando at Mining.com.au
Images: Stock
