What Do More Bigger And Faster Rate Hikes Mean For Commodity Prices?

Key Fundamentals in the Past Quarter

There is no denying that the previous quarter was monumental for monetary policy as central bankers across the world ramped up their fight against rapidly surging inflation while acknowledging that inflationary pressures could persist for years – driven in part by the war in Ukraine, worsening supply chain disruptions and effects of COVID related shutdowns in China.

Once again in the 3rd quarter of 2022, global monetary policy continues to be a dominant force driving market sentiment almost on a daily basis – And that narrative shows no signs of slowing down anytime soon!

US Inflation and Federal Reserve Rate Hikes

Data released last week, showed Consumer Price Inflation in the U.S surged to a new four-decade high of 9.1% in June – its largest annual increase since November 1981 and a significant jump above economists’ estimates for an 8.8% increase.

The data will enviably spur the Federal Reserve’s efforts to restore price stability, which intensified last month after officials abandoned previously-laid plans to deliver a half-point interest rate hike and instead implemented the first 75 basis point increase since 1994.

In the lead up to last week’s inflation data release, traders were already pricing in another 75 basis-point rate hike at the Fed’s upcoming July policy meeting in just over two weeks. However, last week’s reading has completely changed everything – intensifying pressure on the Fed to respond with an “historic super-sized” 100 basis-point rate hike this month.

Rate Hikes Around the World

A string of big rate rises by the Federal Reserve has now put pressure on central banks around the world to follow suit to counter soaring inflation and the strong dollar.

Canadian policymakers became the latest to surprise markets with a bigger than expected rate increase, opting for a 100 basis point hike last week – the largest by any G7 economy since 1998.

In the three months to June, 62 policy rate increases of at least 50 basis points were made by 55 central banks. Another 17 big increases of 50 basis points or more have been made in July so far, marking the biggest number of large rate moves at any time since the turn of the millennium and eclipsing the most recent global monetary tightening cycle, which was in the run-up to the global financial crisis.

What’s Next?

Looking ahead, rate hikes will remain the primary focus for traders in July with a long-list of central bank monetary policy meetings back on the agenda again and more surprise hikes almost inevitably likely. This week see a plethora of monetary policy meetings with The European Central Bank, Bank of Japan and The Central Bank of Russia taking centre stage.

Right now, Commodities remains a traders’ market packed with endless opportunities to capitalize on the short-term macro-driven volatility.

Commodity Price Forecast Video for the Week 18-22 July 2022

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.