Futures & Commodities

Bad quarter for stocks; dire one for commodities


The third quarter has been a bad one for global markets, with a rout in commodities putting the asset class among the hardest hit by China slowdown fears and U.S. interest rate uncertainty.

Copper prices plunged to a six-year low earlier this week, while Brent crude oil prices were on course for a 23 percent fall during the period.

Carla Gottgens | Bloomberg | Getty Images

"We've pushed raw materials down so far, we must be getting to the point where they start to base out," Marc Ostwald, a strategist at ADM Investor Services, told CNBC on Wednesday.

"Are we going to see great things for commodities in the fourth quarter? No. Are they going to be the disaster area that they were in the third quarter? No," said Ostwald. "We're unlikely to get a broad rally and there will be more volatility."

Read MoreGartman: Time for bearishness on commodities behind us

Analysts said that growing signs of weakness in China's economy has prompted investors to rethink the value of a host of commodities.

These valuations have long been driven by strong demand from China, which is the world's second largest economy and the world's largest consumer of many of these raw materials.

Data earlier this week showed that profits at Chinese industrial firms in August suffered their biggest fall in four years, triggering the latest sell-off in commodities.

The rout spilled over into the global metals and the mining sector. Global commodities and trading firm Glencore saw its shares tank nearly 30 percent on Monday to a record low on fears about how the firm would tackle a prolonged fall in metal prices.

Read MoreIs Glencore the mining sector's Lehman moment?

And an emissions-testing scandal at German carmaker Volkswagen has exacerbated the markets' woes. Platinum prices slumped to a six-and-a-half year low after Volkswagen last week admitted to cheating in U.S. emissions tests. The metal is used in diesel vehicles to clean up emissions from exhausts.

The Thomson Reuters Core Commodity CRB Index, which tracks 19 commodities, is set to end the quarter about 15 percent lower to where it ended the second quarter. It has tumbled about 31 percent over the past year.

In comparison, the S&P 500 stock index of U.S. shares is poised to end the third quarter down more than 8 percent.

Have markets overreacted to falling commodities?

"Everyone is negative; everyone is positioned for weakness in commodities and emerging markets so at some point there will be an opportunity for a rebound," Valentijn Van Nieuwenhuijzen, head of strategy at NN Investment Partners, told CNBC on Tuesday.

"It's still early for it, but there could be some bottom fishing," he said.

Analysts said uncertainty about when the U.S. Federal Reserve would lift off on a long-awaited interest rate hike would remain a headwind for commodity markets in the fourth quarter.

The Fed left rates at a record low earlier this month and took markets by surprise with a dovish statement that expressed concerns about the state of the global economy. Comments from Fed speakers since then, however, have suggested a hike this year could still be on the cards.

"Over the last two weeks, basically since the Fed's 'no move', there has been a fear factor driving markets rather than an underlying shift in the global economy," Van Nieuwenhuijzen said.

"There's no full blown panic but there is a sense that sentiment is getting a bit more pessimistic than the fundamentals justify," he said.