Love them or hate them, carbon contracts are the City’s hottest trade this year. Those hedge funds and eagle-eyed amateurs who track the EU’s regulatory flow have made windfall profits. Permits for EU carbon emissions spiked to a seven-year high of €20.84 on Friday. They have risen fivefold since the spring of 2017, the best performing “commodity” in the world. The contracts have decoupled completely from energy prices and global raw materials. Most commodities have been sliding jerkily for four months. Copper has fallen 17pc since mid-June and is flirting with a bear market. So are zinc and lead. Lumber and sugar have both dropped a third over recent months. This tells us that something about the underlying health of the world economy. Trade volumes stalled even before Donald Trump launched his tariff wars. It is the result of two shocks: a fall in Chinese fixed investment growth to levels unseen since the 1990s amid the crackdown on China’s shadow banking; and stress in emerging markets as the US Federal Reserves drains global dollar liquidity.
Telegraph 27th Aug 2018 read more »