Since the beginning of this year, global inflation has intensified, and many central banks around the world have joined the trend of raising interest rates. It is reported that central banks in more than 20 countries have raised interest rates more than 60 times this year.
After India and Australia started a new interest rate hike cycle last week, the European Central Bank also recently released a signal to raise interest rates. On June 9, local time, the European Central Bank announced its interest rate decision, keeping the three key interest rates unchanged. At the same time, it decided to terminate the net asset purchases under its asset purchase plan from July 1, and planned to raise the key interest rate by 25 basis points at the July monetary policy meeting and raise interest rates again in September. It is reported that if the European Central Bank raises interest rates in July this year as scheduled, it will be its first interest rate increase in ten years. European Central Bank President Christine Lagarde said that if the September inflation forecast for 2024 remains at the current level or higher, the interest rate hike will likely exceed 25 basis points by then.
So, as a new round of large-scale interest rate hikes begins around the world, where will the trend of commodities go?
Everbright Futures macro analyst Yu Jie said in an interview with a reporter from Futures Daily that, represented by the Federal Reserve’s interest rate hike, U.S. inflation in May continued to hit a 40-year high of 8.6% year-on-year, exceeding expectations of 8.2%. From the current point of view, U.S. housing inflation has become the main driver of core inflation. Among them, the rent sub-item with the highest weight lags behind the increase in housing prices by about a year and a half and is expected to remain quite strong. It is expected that the year-on-year core CPI level in the United States in 2022 will still be quite high. Enough to support the Federal Reserve’s continued interest rate hikes. In the context of relatively certain inflation and deflation, the growth outlook may become the key to the deal, and the possibility of triggering a recession deal increases. There is little doubt that the U.S. economic slowdown in the first half of the year will lead to an economic recession next year.
“At the same time, as the Federal Reserve raises interest rates, countries other than the United States will also be under greater pressure, which can be said to be negative for global aggregate demand. Overall, the United States is under great recession pressure, and high inflation restricts the Federal Reserve’s monetary policy space. , then from the perspective of asset pricing, if valuations do not expand and profits fall, risk asset prices will naturally have downward momentum. Therefore, the commodity market may have a risk of falling against the background of rising recession expectations.” Yu Jie said.
Shao Yanan, an analyst at Centaline Futures, also said that the start and advancement of the Fed’s interest rate hike cycle will undoubtedly have an impact on commodities. The Fed’s tightening since March this year is a rare situation in history where “interest rate hikes + balance sheet reduction” have been carried out simultaneously or successively. From the perspective of liquidity, in the context of the core goal of controlling inflation and strictly preventing stagflation, , it is expected that this tightening cycle will have a relatively strong impact on commodities. If the two “interest rate hikes + balance sheet reduction” in 2000 and 2018 both triggered a decline in commodities sooner or later, considering that the contraction in this tightening The degree of coordination between the balance sheet and interest rate hikes and the pace and scale of balance sheet reduction are far greater than before, so this round of commodities has more reason to be under pressure due to liquidity.
“In general, after the Federal Reserve officially starts the cycle of ‘raising interest rates + shrinking its balance sheet’, the commodity market should be under downward pressure in the long term due to tighter liquidity. In the medium term, the contradictions in market trends will It will be based on the fundamentals of supply and demand. Among industrial products, the demand for the energy sector may fall due to the decline in global economic growth, which will affect prices. Energy, black and non-ferrous products, as cyclical commodities, will be affected by the overall weakening demand. There is further differentiation. In comparison, agricultural products may be stronger, and there is still room above. As for whether and when the commodity market will reach an inflection point, it depends on the actual effect of the Federal Reserve’s suppression of inflation and the actual performance of economic growth. “Shao Yanan said.
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