Macro Themes Driving the Commodity Markets
June is certainly shaping up to be an incredibly profitable month with hotter-than-expected economic data, stubbornly high inflation and the risks of stagflation now emerging as the three biggest macro themes driving the Commodity markets.
This week is all about the macroeconomics with trader’s attention firmly focused on a string of hotly anticipated data releases including U.S Consumer Price and Producer Price Inflation figures, as well the outcome of The Federal Reserve and European Central Bank’s interest rate decisions.
Taking front and centre stage will undoubtedly be the Federal Reserve’s Monetary Policy Meeting on June 13-14.
Over the past 16 months, the Federal Reserve has rolled out their most aggressive interest rate hiking campaign ever in history.
And so far, their efforts to cool the economy and lower inflation has barely made a dent. Inflation is proving resilient and there is a risk that it will remain high even as growth sags.
While they may not wish to admit it, conclusive evidence shows that the task of lowering inflation has become a difficult challenge for policymakers – signalling that an era of stagflation could be on the horizon.
In the lead-up to their Policy Meeting this week, several top Fed officials have endorsed the need to continue raising interest higher as ‘insurance’ against inflation. A move that would lift the federal funds rate to the highest level since January 2001, up from nearly zero early last year.
Those odds surged after Non-Farm Payrolls data showed, the U.S. economy continued to defy expectations by adding 339,000 new jobs in May – more than twice the expectations – prompting criticism that Fed’s ongoing efforts to slow down the economy and tame inflation is failing to have the desired effect.
With the Fed’s credibility at stake and inflation still well above their 2% target, there is now huge pressure on policymakers to “stay the course” in their fight against stubbornly high inflation.
One of the biggest macro releases that traders will be watching out for is U.S Consumer Price Inflation data, due on Tuesday — one day before the Fed’s rate announcement. Ultimately, the outcome of this data will either make the Fed’s rate decision a lot easier or a lot more difficult.
Extraordinary times create extraordinary opportunities. Regardless of how upcoming events unfold, the Fed’s next move is guaranteed to move the markets significantly, bringing with it massive opportunities.