Macroeconomic impacts on commodity prices: China vs. the United States

Abstract

This study compares the macroeconomic impacts of China and the United States on international commodity markets using a factor-augmented vector auto-regression (FAVAR) model with latent factors extracted from a rich data set that includes various macroeconomic and financial indicators at monthly frequency. The main results suggest that whether or not the Chinese demand cause commodity prices to soar depends. Macroeconomic factors of China do have significant impact on commodity markets, but the impacts of the United States outperform those of China in terms of the size of coefficients and their level of significance, as well as the direction and magnitude of directional return spillovers. Moreover, the effects of these factors on individual commodity futures are not a universal phenomenon. Therefore, there is no systematic evidence of a relationship between strong growth in the emerging economy and the boom in commodity futures prices, either statistically or economically.

Intermediary asset pricing in commodity futures returns

“…Another area of research argues that changes in commodity prices may be partly ascribed to changes in interest rates and the value of the dollar (Frankel, 2006; Watugala, 2019; Yin & Han, 2016). Commodity prices and the general price level also tend to be closely related.…”

“…The broad surge in commodity prices in recent years has stimulated renewed interest in commodity markets, which has led researchers to explore the factors that might impact the behavior of commodity futures prices. Despite the effects of strong global growth on the demand for commodities from emerging economies (Fattouh & Mahadeva, 2014; Hamilton, 2009; Kilian, 2009), much of the literature attributes the boom‐and‐bust cycle to the elevated participation of institutional investors in commodity markets (Büyükşahin & Robe, 2014; Cheng, Kirilenko, & Xiong, 2014; Henderson, Pearson, & Wang, 2015; Singleton, 2013; Yin & Han, 2016). Beginning around 2004, the rapid influx of money into commodity markets that is attributed to institutional investment grew sharply from less than $15 billion in 2003 to more than $350 billion in 2018.…”

“…Finally, we explore whether any heterogeneity exists in the effects of intermediary capital risk across individual commodities, since commodities comprise a very heterogeneous asset class (Daskalaki, Kostakis, & Skiadopoulos, 2014) and the main drivers of price may be commodity‐specific (Yin & Han, 2016). When sorting commodity futures into portfolios based on their conditional characteristics, we find that, for the positive intermediary capital risk factor, portfolios with low basis, low open interest, low momentum, and low liquidity earn significantly higher returns than the counterparty portfolios for the whole period.…”

A Model for Companies to Overcome US–China Conflict on International Trade

“…In this context, and on one hand, Jiang et al (2017) confirm the existence of significant spillovers from the United States to China and provide evidence for the increased pricing power of the Chinese market. On the other hand, Yin and Han (2016) argues that Chinese commodity prices depend on the macroeconomic factors (Hartman and Whooley, 2016), but also of the US outperform.…”

Exchange Rate Movements and Fundamentals: Impact of Oil Prices and the People’s Republic of China’s Growth

“…The PRC, as the world's biggest importer of commodities, can affect commodity prices to a large extent from its strong trade linkages, see Frankel (2006). 1 Yin and Han (2016) show that macroeconomic factors of the PRC have significant impact on commodity markets. To this end, we are interested in whether the rise of the PRC affects global exchange rate dynamics, especially after the financial crisis.…”