Investigating the Impact of COVID-19 Outbreak On U.S. Commodity Market

Abstract

SARS-Cov-2 was first reported in Wuhan, a town in Hubei Province of China with a population of 11 million in December 2019, following an outbreak of non-pneumonia a clear cause. The virus has now spread across the globe to more than 200 countries and territories, and the world health organization (WHO) described it as a pandemic on 11 March 2020. On the economic front, COVID-19 has led more than 200 countries partial or totally lockdown, disrupted global supply chain, and induced a significant fall in both economic activity and financial asset prices. United States, being one of the highest country affected by the Virus with 80.9M Cases, 45.8M Infected, and 1.77M Deaths as at the 28th of December 2020. Recently vaccines have been developed but the contamination wave keeps on increasing every day. On the socioeconomic front, COVID-19 has led more than 200 countries into partial or total lockdown, disrupted global supply chains, and induced a fall in both economic activity and financial asset prices. It’s of prime importance to study how COVID-19 impact’s U.S commodity market. The commercial and financial effect of COVID-19 The impact of COVID-19 are unclear because the public health crisis is still unfolding. There is limited amount of studies concerning this topic, because the crisis is still unfolding. The objective of this study is to investigate the impact of COVID-19 on U.S commodity market. The author uses extreme bound analysis for market interpretation and sourced data from the Federal Reserve Economic Database (FRED) and Our World in Data COVID-19, from January 2 to November 16 2020.

The results of the commodity market show that, Foreign Exchange and Stringency Index are the only determinants of commodity Prices from Leamer EBA approach. Furthermore, The results of the normal model show that, TED spread (i.e. the difference between the 3 months Treasury bill and the 3-month LIBOR based in U.S. dollars), and Total Death are robust determinants of Oil Prices while the generic model highlights the importance of TED spread, Total Deaths. In addition, the correlation matrix show that, Foreign exchange and the price of Bitcoin has and impact on Gold Prices, a significant negative relationship with Stringency index. On the other hand, Total Deaths of COVID-19 has a significant negative relationship on Oil prices.

Keywords: Commodity market, Foreign Exchange, Interest Rate, COVID-19, Stringency Index

JEL Classification: M01, G01