The Stocks / Commodities Disconnect

This disconnect is certainly one of the more remarkable features of the risk-on rally since 2011.

Here's an illustration from Julian Jessop at Capital Economics via FT Alphaville:

It seems as though this makes no sense at all - shouldn't commodities be benefiting from the same easy money policies as stocks are? - but the explanation can be found, according to Jessop and FT's Paul Murphy, in the weakness of China:

    The moves are logical. Stocks are up because of rampant QE, which is squeezing investor flows out of bond markets and into equities. And the reason we’ve got rampant QE is the continued lack of near-term economic recovery globally, which is manifestly bad for industrial commodities.

    Jessop notes that industrial metals are particularly sensitive to Chinese growth prospects and it seems noteworthy that Shanghai is one stock market that is not rising at present…