QE and commodities

There is a large disconnect between QE, financial assets, and commodities. Remember that just a few years ago there was a lot of talk about the financialization of commodity markets. The correlation between commodities and financial was growing. Now we have these markets moving in different directions. The chart from Barclay's Bank is telling with how the markets have gone separate ways.

Correlation between commodity and equity daily returns have fallen from around 60% to 20%. The market is more like the pre-crisis period. The correlation between commodity sectors have also fallen. There are a few conjecture we can make about theses markets.

The single factor that used to drive both financial and commodity assets does not currently exist. The link between commodities and QE also does not exist or is broken. The commodity markets themselves seem to be more driven by their individual supply and demand conditions. If there is a common factor that is driving commodity returns, it is world demand. The global growth rate has fallen below 4% and it seems that commodity prices march to global demand and not the money creation of the Fed. The commodity markets are more closely tied to the real economy than the financial world.