Analysing a frequency and quantile connectedness spillover dynamics nexus: Metals, grains, and energy markets under economic signals

Abstract

In this study, we examine the impact of global economic indicators on connectedness spillovers among energy, metal, and grain commodity markets. Global economic indicators directly create a transmission channel to commodity markets by reflecting financial and trade fluctuations worldwide. Especially in tail regions, basic commodities such as energy, metal, and grain are affected by economic uncertainties, oil supply-demand, and economic policy uncertainty shocks. In particular, Copper emerges as the main net transmitter of shocks in both short- and long-term periods, while oil and gas prices are net shock receivers in the median and extreme right tail regions. This finding strengthens the narrative of the demand-side mechanism of oil prices. On the other hand, Copper and Nickel are clear shock transmitters in tail regions. These results emphasize the interconnectedness of commodity markets and the importance of short-term dynamics in shaping market behavior during downturns and upturns in market conditions. However, economic policy uncertainty significantly attenuates spillover connectedness across energy, metal, and grain commodity markets during periods of heightened complexity. This indicates that EPU disrupts cross-market linkages, leading to desynchronization in price transmissions. Conversely, the Baltic Dry Index and oil prices amplify spillover effects, reinforcing market integration through global demand channels. This finding strikingly indicates that energy, metal, and grain market interconnectedness increases, driven by global aggregate demand. In this context, our study supports the demand-side transmission narrative and provides evidence that economic policy uncertainty does not create momentum among connectedness spillover among energy, metal, and grain commodity markets.