(Witthaya Prasongsin/Getty Images)

Commodities including oil, natural gas, metals and agricultural products joined a global sell-off in equities on Monday as fears of a US recession stoked worries over demand, though losses varied widely.

Commodities had already taken a hit in recent weeks, weighed down by a sluggish economy in top buyer China, with crude oil down around 5% last week, copper hitting a four-month low on the London Metal Exchange, and corn near its weakest since 2020.

“Commodities have seen selling pressure throughout the last month, basically meaning the momentum crash currently hitting stocks has to a certain degree already occurred,” Saxo Bank analyst Ole Hansen said.

Crude oil dropped around 1-1.5% on Monday in volatile trade, less than losses on major equity indexes as U.S. recession fears and possible implications for oil demand were somewhat mitigated by price support from rising tensions in the Middle East.

“Geopolitics, for example anxiety about Middle East supply disruption, and the growing belief that OPEC will not unwind voluntary (output) cuts, provides relative support for oil as opposed to equities,” PVM analyst Tamas Varga told Reuters.

Israel and the US are bracing for a serious escalation in the Middle East after Iran and its allies Hamas and Hezbollah pledged to retaliate against Israel for last week’s killings of Hamas’s leader and a top Hezbollah military commander.

Copper prices tumbled over 3% to 4-1/2 month lows as a deteriorating demand outlook in China and the United States, the world’s two largest economies, triggered a sell-off of the metal used in power and construction.

Gold was last down 2.7%.

“Gold on a relative basis does better than other metals when people are worried about recession. But it will also come under pressure because people sell it to meet their margins in other markets,” Liberum analyst Tom Price said.

European gas, power and carbon contracts also fell.

European benchmark gas for the month ahead sank more than 5% in early trade to 35.17 euros/megawatt hour.

Gas has been under pressure from higher Norwegian supply and seasonally high temperatures, but panic selling in line with the wider sell-off was also a factor, according to one trader.

EU carbon permit prices for delivery in December were down around 3.5% on “fears that an economic downturn will limit activity”, according to Henry Lush, EU carbon analyst at consultancy Veyt.

Most agricultural markets suffered too, with wheat down 3-3.5%, corn down 1.5%, soybeans down 1% and sugar at a near two-year low.

“The big sell-off in world equity and other financial markets today has also pushed down wheat, corn and soybeans as a risk-off atmosphere prevails,” said Matt Ammermann, StoneX commodity risk manager.

“This is overriding the impact of the weaker dollar which would usually be supportive for U.S. grains and soybeans.”

Soft or hard landing?

Guy Wolf, global head of market analytics at Marex, said softer US data could help markets by making it easier for central banks to cut interest rates, although a hard landing for economies would ultimately hit demand.

“If you look at the Chinese data, domestically it is soft and exports are struck, so if the rest of the world weakens … it is clearly going to be negative for base metals,” he said.

Still, he said declines for metals should be limited by supply disruptions and demand from new energy sectors.

Growth in China’s services activity accelerated in July, helped by new orders, although momentum in overseas demand eased to its slowest in 11 months, a private sector survey showed.

China should ramp up its fiscal stimulus to spur economic growth and set a firm inflation target to prevent the country falling into a “low inflation trap”, a central bank policy adviser said in remarks seen on Friday.