El Niño and the Strait of Hormuz Push Commodities Higher While U.S. Stocks Stay Calm

August was calm in U.S. stocks, but commodities and bonds told a different story. The S&P 500 rose 2.7% on a total-return basis, and the “Magnificent Seven” added 4.4%, while U.S. and euro area business activity stayed in expansion mode and earnings remained strong enough to absorb geopolitical and policy uncertainty. Outside equities, the moves were far larger. Gold climbed 9.7%, silver gained 15.6%, corn rose 16.8%, wheat advanced 18.3%, and sugar surged 21.5%. At the same time, the U.S. 30-year Treasury yield climbed to its highest level since 2007, while long-dated debt in Europe and Japan also came under pressure. Stephen Innes, drawing on Deutsche Bank strategists Jim Reid and Henry Allen’s monthly asset-performance review, said the August rally in farm goods reflected a re-pricing of two supply risks: restricted shipping through the Strait of Hormuz, which could lift energy, fertilizer, and transport costs, and a strengthening El Niño, which may shift rainfall and temperature patterns and raise the odds of drought, flooding, and extreme heat in major farming regions. The trade is still mostly about expectations. El Niño does not automatically mean a global crop shortfall, and the Hormuz situation has not yet fully shown up in crude’s monthly move. What will matter next is whether weather risk turns into lower output, and whether energy and logistics costs start feeding through to food inflation. Deutsche Bank’s August review showed that the biggest price swings were happening outside stocks. Precious metals and agriculture were the strongest asset groups of the month. Gold rose 9.7% and silver 15.6%; corn futures jumped 16.8%, their biggest monthly gain in five years; wheat climbed 18.3%, its best showing in four years; and sugar gained 21.5%, the largest monthly increase since 2018. That strength has much to do with El Niño. The climate pattern is defined by persistently warmer-than-normal sea surface temperatures in the central and eastern equatorial Pacific, which can alter global circulation and shift rainfall, temperature, and storm tracks. It does not determine yields on its own, but it can raise uncertainty for crop output. NOAA said in August that El Niño was strengthening, with sea surface temperature anomalies in parts of the equatorial Pacific already above 2°C. The agency said the probability of a “very strong” El Niño in the 2026 autumn-winter period was above 90%. For commodity markets, the question is not just whether El Niño forms. It is where, when, and through which crops it affects global supply. In Australia, El Niño typically raises the risk of hot and dry conditions in the east and south, which can hurt wheat production and quality. In parts of Southeast Asia, weaker rainfall can also pressure sugar and palm oil. South America brings a different set of risks. Brazil and Argentina are major exporters of corn, soybeans, and sugar, and El Niño can change rainfall patterns across their key growing areas. Too little rain can hurt planting and crop growth; too much can delay fieldwork, damage quality, and disrupt transport. That is why August’s rally looked more like a weather-risk trade than a confirmed supply shock. Markets have not yet proven that global output is falling, but with El Niño intensifying, investors are starting to price in the chance of lost supply. Corn, wheat, and sugar did not rise for exactly the same reasons. Corn is highly sensitive to weather in the U.S. and South America, planting pace, inventories, feed demand, ethanol demand, and exports. If El Niño disrupts planting or crop development in Brazil and Argentina, expectations for next season’s supply can change quickly. Wheat supply is more spread out. The U.S., Canada, Australia, and the Black Sea region all matter. Drier weather in Australia, higher global freight costs, or shifts in output from major exporters can all raise importers’ costs. Sugar is especially exposed to weather in Brazil, India, and Thailand. Irregular rainfall can affect cane yields and also influence how much cane is used for sugar versus ethanol. Energy prices, currencies, and export policy also matter. El Niño helps explain the shared weather risk, but it does not explain the full move by itself. Inventories, speculative positioning, export rules, energy costs, and short-term fund flows can all amplify price swings. More precisely, markets are pricing a higher probability of lower output, not confirmed losses. If upcoming production and inventory data do not validate the concern, the weather premium could fade quickly. The Strait of Hormuz is another key variable in Deutsche Bank’s note. It is one of the world’s most important routes for oil and liquefied natural gas. Any disruption first hits crude, gas, and refined products, but the effect can spread through the production chain into agriculture and food prices. Farming depends heavily on energy. Diesel affects fieldwork and transport; natural gas is a key input for nitrogen fertilizer; and shipping disruptions can push up freight, insurance, and delivery times. Even if crop shortages do not appear right away, production and trade costs can still rise. Weather and energy risks can also reinforce each other. El Niño lifts the odds of lower output, while conditions around Hormuz raise the cost of inputs and cross-border transport. When uncertainty rises on both the supply and cost sides, traders and investors usually demand a higher risk premium. Brent crude, however, rose only 0.4% in August, one of its smallest monthly changes of 2024. That calm finish masked large intramonth swings and showed how often the market was shifting between shipping concerns and possible diplomatic progress. So a near-flat monthly oil move does not mean the energy risk is gone. The inflation impact from Hormuz may show up more gradually through refined products, fertilizer, shipping, and food costs. Precious metals were another standout. Gold rose 9.7% in dollar terms in Deutsche Bank’s data, and silver added 15.6%. That strength came even as some shorter-dated Treasury yields moved higher. Normally, higher rates raise the opportunity cost of holding non-yielding assets like gold, but August’s move suggests investors were trading more than just the rate path. The U.S. 30-year Treasury yield climbed to 5.31%, the highest since 2007. Germany’s 30-year yield rose to 3.81%, its highest since 2011. Higher long-term funding costs brought fiscal deficits, debt supply, and monetary credibility back into focus. The U.S. Treasury later announced a larger liquidity-support buyback program for long-dated Treasuries, increasing the single-auction size for 10- to 20-year and 20- to 30-year nominal coupon bonds from up to $2 billion to at least $4 billion, effective Sept. 9. The buybacks are meant to improve old-bond liquidity and market functioning. They are not quantitative easing and do not mean the Treasury is directly targeting yields. Still, after the announcement, long-end yields briefly fell, and traders started debating whether policymakers would lean more actively against rising long-term borrowing costs. In that setting, the rally in gold and silver likely reflected a mix of safe-haven demand, inflation concern, fiscal pressure, and investor attention to possible intervention in sovereign bond markets. Precious metals and farm goods may both sit under the commodities umbrella, but they trade different risks: the former are tied more closely to money and credit, while the latter react more directly to weather, energy costs, and supply expectations. The equity market, by contrast, stayed relatively quiet. The Philadelphia Semiconductor Index rose only 2.0% in August after four straight months of gains or losses above 10%. The S&P 500 kept rising, but there was no obvious risk-off shock. That split fits a backdrop of resilient growth. U.S. and euro area PMIs remained in expansion territory, and earnings stayed firm enough to support equity valuations. For bonds, though, the same data meant there was little reason for central banks to pivot quickly toward easing. If commodity prices keep pushing inflation higher, room for policy relief may narrow further. The U.S. yield curve flattened in August. Deutsche Bank said the 2-year Treasury yield rose 5 basis points over the month and jumped 11 basis points in a single session after a Jackson Hole speech by Federal Reserve Chair Kevin Warsh. By contrast, the 30-year yield, though it touched multi-year highs during the month, ended about 3 basis points below where it started in July. Pressure was even stronger in Europe and Japan. France’s 10-year yield rose 18 basis points, Italy’s rose 13, and Germany’s rose 12. In Japan, the 10-year yield climbed 15 basis points and the 2-year yield rose 23 basis points, reflecting higher expectations that the Bank of Japan may tighten further. Stocks, bonds, and commodities are now pricing three different stories: equities are betting on continued growth and earnings, bonds are worried about inflation, fiscal stress, and tighter policy, and commodities are starting to price energy and weather-related supply disruptions ahead of time. Whether this commodity move lasts will depend first on El Niño. The market will be watching South American corn and soybean planting, Australia’s wheat harvest, sugar output in Brazil and Asia, and inventories and trade policy in major exporting countries. If those indicators worsen, the weather premium from August could expand further. If output holds up better than expected, some of the recent gains could fade. The second variable is the Strait of Hormuz. If shipping remains constrained, energy, fertilizer, and insurance costs could stay elevated and add friction to global farm trade. If routes normalize, some of that premium could come out. The last question is whether commodities feed through into inflation data. If energy and food prices keep rising, central banks may face a harder choice between growth and inflation, and bond markets may keep pricing higher-for-longer rates. If global demand cools sharply, commodity upside could fade even if supply risks remain. Deutsche Bank measures equities, credit, and bonds on a total-return basis, while currencies and commodities are measured on a spot-return basis. All returns are in U.S. dollar terms.