Editor’s Note: Looking solely at U.S. equities, August appeared to be a relatively calm month. The S&P 500 rose 2.7%, while the "Magnificent Seven" tech stocks gained 4.4%; business activity remained expansionary in both the U.S. and the eurozone, and strong corporate earnings helped risk assets absorb geopolitical tensions and policy uncertainty.

Beneath the surface calm of the stock market, commodity and bond markets have shown significant volatility. Gold rose 9.7%, and silver increased 15.6%; corn, wheat, and sugar rose 16.8%, 18.3%, and 21.5%, respectively. Meanwhile, the U.S. 30-year Treasury yield reached its highest level since 2007 this month, with long-term government bonds in Europe and Japan facing similar pressure.

Stephen Innes, referencing the monthly asset performance report by Deutsche Bank strategists Jim Reid and Henry Allen, noted that the sharp rally in agricultural commodities in August reflects a market reassessment of two supply risks: potential restrictions on shipping through the Strait of Hormuz, which could elevate energy, fertilizer, and transportation costs; and the intensifying El Niño, which may alter global precipitation and temperature patterns, increasing the likelihood of droughts, floods, and abnormal heatwaves in major agricultural regions.

This commodity market movement still exhibits clear speculative trading characteristics. El Niño does not necessarily lead to synchronized global agricultural production declines, and the situation in the Strait of Hormuz has not yet fully reflected in monthly crude oil price gains. What will ultimately determine price direction is whether weather risks translate into reduced yields, and whether energy and logistics costs further transmit inflationary pressures to food prices.

The following is the translated text:

August did not see the sharp volatility commonly seen in late summer over the past few years. Economic data remained resilient, and global equities continued to rise. The S&P 500 posted a total return of 2.7% for the month, with technology stocks remaining the primary driver; the "Magnificent Seven" advanced 4.4%, and the U.S. market continued to be dominated by a small number of large companies.

The macroeconomic backdrop supporting risk assets remains robust. The eurozone’s preliminary composite PMI rose to 52.1 in August, reaching a nine-month high, while the U.S. composite PMI increased from 54.5 in July to 56.0, the highest level in 52 months. A PMI above 50 typically indicates expansion in business activity.

Growth resilience and strong earnings helped U.S. stocks continue their upward trajectory, but Deutsche Bank’s August asset performance review shows that the most significant price movements occurred outside the stock market.

Precious metals and agricultural commodities were the top-performing assets of the month. Gold rose 9.7%, and silver increased 15.6%; corn futures surged 16.8%, posting their largest monthly gain in five years; wheat climbed 18.3%, achieving its best monthly performance in four years; and sugar prices rose 21.5%, marking the largest monthly increase since 2018.

While U.S. stocks continue to price in growth and profitability, commodities have already begun to reflect supply risks from inflation, geopolitical conflicts, and extreme weather.

El Niño warming causes agricultural products to be the first to reflect weather premiums.

Deutsche Bank attributes part of the August agricultural price increases to the El Niño phenomenon.

El Niño is a climatic phenomenon characterized by the sustained abnormal warming of sea surface temperatures in the eastern and central equatorial Pacific Ocean, which alters global atmospheric circulation. While it does not directly determine the yield of any specific crop, it may shift patterns of precipitation, temperature, and storm distribution across regions, increasing uncertainty in agricultural production.

In August, the U.S. National Oceanic and Atmospheric Administration (NOAA) stated that El Niño is strengthening, with sea surface temperature anomalies in parts of the equatorial Pacific exceeding 2 degrees Celsius. The agency forecasts a probability of over 90% for a "very strong" El Niño event during the fall and winter of 2026.

For agricultural markets, the key issue is not only whether El Niño will form, but also when, through which regions, and which crops it will affect global supply.

In Australia, El Niño typically increases the risk of hotter and drier conditions in the eastern and southern regions, potentially affecting the yield and quality of crops such as wheat. In parts of Southeast Asia, insufficient rainfall may also impact tropical agricultural products like sugar and palm oil.

South America faces another uncertainty. Brazil and Argentina are major global exporters of corn, soybeans, and sugar, and El Niño could alter precipitation patterns in their key producing regions. Insufficient rainfall may affect planting and crop growth, while excessive rainfall could delay field operations, damage crop quality, and hinder transportation.

Therefore, the August agricultural price increase was more akin to a weather risk trade: the market has not yet confirmed widespread global production losses, but as El Niño strengthens, investors are beginning to price in potential supply disruptions.

Why are corn, wheat, and sugar rising simultaneously?

Corn, wheat, and sugar all posting double-digit gains in the same month does not mean they are driven by identical factors.

Corn prices are sensitive to weather conditions, planting progress, and inventory changes in the U.S. and South American producing regions, as well as to demand from feed, ethanol, and export markets. If El Niño disrupts planting and growth in Brazil and Argentina, it could alter market perceptions of next season’s supply.

Wheat supply sources are relatively diversified. In addition to the United States, Canada, and Australia, the Black Sea region is also a major global export source. Drier weather in Australia, rising global transportation costs, or changes in supply from major exporting countries could all increase procurement costs for importing nations.

Sugar prices are particularly sensitive to weather conditions in Brazil, India, and Thailand. Abnormal rainfall can affect sugarcane yield per unit area and alter the proportion of sugarcane used for sugar production versus ethanol production. Markets also simultaneously assess changes in energy prices, exchange rates, and export policies.

El Niño can explain the weather-related risks facing these three commodities, but it is insufficient alone to account for the entire price increase. Inventory levels, speculative positions, export policies, energy costs, and short-term capital flows may also amplify price volatility.

More precisely, the market is currently pricing in an increased probability of production cuts, rather than actual cuts having occurred. If subsequent production and inventory data fail to validate supply concerns, the weather risk premium embedded in prices could also decline rapidly.

The Hormuz risk is now being transmitted to the agricultural supply chain.

In addition to weather factors, restricted shipping in the Strait of Hormuz is another important variable mentioned by Deutsche Bank.

The Strait of Hormuz is a vital corridor for global oil and liquefied natural gas transportation. Disruptions to shipping first impact crude oil, natural gas, and refined petroleum markets, but the effects may also propagate along the supply chain to agricultural and food prices.

Agriculture is highly dependent on energy. Diesel affects the costs of farming and transportation, natural gas is a key raw material for producing nitrogen fertilizers, and restrictions on shipping could increase freight rates, insurance premiums, and delivery times. Even if there is no immediate shortage of agricultural products, their production and trade costs may still rise.

Weather and energy risks may also compound each other. El Niño increases the likelihood of production cuts, while tensions in the Strait of Hormuz raise costs for agricultural inputs and cross-border transportation. When uncertainties on both the supply and cost sides rise simultaneously, traders and investors typically demand a higher risk premium.

However, Brent crude for August rose only 0.4%, recording one of the smallest monthly changes since 2024. This seemingly stable outcome masks significant intramonth volatility and reflects the market’s ongoing adjustment of expectations between shipping constraints and potential progress in negotiations.

Therefore, the near-zero monthly increase in crude oil prices alone does not indicate that energy supply risks have disappeared. The impact of the Strait of Hormuz situation on inflation may gradually manifest through higher costs for refined oil, fertilizers, shipping, and food.

Gold and silver strengthen; commodity trading is not only about weather logic.

Beyond agricultural products, precious metals were also among the top-performing asset classes in August. According to Deutsche Bank’s data in U.S. dollars, gold rose 9.7% and silver rose 15.6%.

Precious metals strengthened amid rising yields on some short-term government bonds. Typically, rising interest rates increase the opportunity cost of holding non-yielding assets, putting pressure on gold. However, the continued rise in silver and gold prices in August suggests that investors are trading on factors beyond just interest rate trends.

The U.S. 30-year Treasury yield rose to 5.31% this month, reaching its highest level since 2007; Germany’s 30-year Treasury yield climbed to 3.81%, hitting its highest level since 2011. Rising long-term financing costs have refocused market attention on fiscal deficits, debt supply, and monetary credibility.

The U.S. Department of the Treasury subsequently announced an expansion of its long-term Treasury liquidity support repurchase program, increasing the single-repurchase limit for nominal coupon Treasuries with maturities of 10 to 20 years and 20 to 30 years from a maximum of $2 billion to at least $4 billion, effective September 9.

This type of buyback is primarily intended to improve the liquidity of existing securities and the overall functioning of the Treasury market; it is not equivalent to quantitative easing, nor does it signify that the Treasury has begun directly controlling yields. However, after the announcement, long-term yields briefly declined, and markets have begun discussing whether policymakers will more actively seek to limit the rise in long-term government financing costs.

In this environment, the rise in gold and silver may reflect simultaneous demand for safe-haven assets, inflation concerns, fiscal pressures, and investor attention to government bond market interventions. Although precious metals and agricultural products both belong to the commodity class, their trading dynamics differ: the former is more closely tied to monetary and credit risk, while the latter more directly reflects weather conditions, energy costs, and supply expectations.

The calmer the stock market, the more noteworthy the cross-asset divergence becomes.

While commodity prices rose rapidly, volatility in U.S. stocks and certain tech assets decreased.

The Philadelphia Semiconductor Index rose only 2.0% in August, following four consecutive months with monthly movements exceeding 10%. The S&P 500 continued to rise, but without a clear safe-haven impact.

This divergence is linked to the resilience of economic growth. The PMIs of the U.S. and the eurozone continue to expand, and corporate earnings remain strong, providing fundamental support for equity valuations. However, for bond markets, the same data implies that central banks have little reason to quickly shift toward easing; if rising commodity prices further push up inflation, monetary policy space could face even greater constraints.

The U.S. Treasury yield curve flattened in August. According to Deutsche Bank, the 2-year Treasury yield rose 5 basis points during the month and increased by 11 basis points in a single day following remarks by Federal Reserve Chairman Kevin Warsh at Jackson Hole. In contrast, the 30-year yield, although reaching a multi-year high during the month, declined by approximately 3 basis points by month-end compared to the end of July.

Pressure in the bond markets of Europe and Japan has become more pronounced. France’s 10-year government bond yield rose 18 basis points, Italy’s by 13 basis points, and Germany’s by 12 basis points; Japan’s 10-year bond yield increased 15 basis points, while its 2-year yield rose 23 basis points, reflecting heightened market expectations of further monetary tightening by the Bank of Japan.

Stocks, bonds, and commodities have thus formed three distinct pricing dynamics: equities bet on growth and sustained profitability, bonds worry about inflation, fiscal policy, and tightening measures, while commodity markets begin pricing in supply disruptions caused by energy and weather factors.

How long will this commodities rally last?

The key variable determining whether this round of commodity rally can continue is whether El Niño will further intensify and whether weather anomalies will truly translate into yield losses.

Next, closely monitor corn and soybean planting in South America, wheat harvests in Australia, sugar production in Brazil and Asia, as well as inventories and trade policies of major exporting countries. If these indicators continue to deteriorate, the weather risk premium seen in August may further expand; if actual production exceeds expectations, earlier gains could face retracement.

The second variable is the shipping situation in the Strait of Hormuz. If transportation remains restricted, energy, fertilizer, and insurance costs may stay elevated, increasing friction costs in global agricultural trade; if the waterway gradually reopens, some of the energy and logistics risk premiums may decline.

Finally, observe whether commodity prices are transmitting to inflation data. If energy and food prices continue to rise, central banks may face a more difficult choice between growth and inflation, and bond markets may again raise expectations for interest rates to remain elevated. Conversely, if global demand shows clear signs of cooling, the upside potential for commodities may be limited, even if supply risks persist.

Therefore, the double-digit increase in agricultural products in August cannot yet be directly viewed as the start of a new long-term commodity bull market. The more clearly evident development at present is that El Niño, geopolitical conflicts, and supply chain costs have re-entered pricing dynamics.

U.S. stocks are still experiencing growth, while commodities are beginning to reflect the inflation and supply costs behind that growth.

Note: Deutsche Bank uses total return for equities, credit bonds, and bonds, and spot return for foreign exchange and commodities; all returns are calculated in U.S. dollars. The price changes for different assets are not measured using identical methodologies.