Commodities & Energy Sector
The crisis hitting regional and local banks in the US is adding to oil-price volatility and gold demand. The crisis arguably is fallout from the Fed’s aggressive monetary policy tightening, and contributes to the upending economic relationships that reliably informed policy, investments and forecasts in the past. This feeds into higher price volatility, which reduces liquidity in the short run, and impedes capex in the long run, which limits future supply growth.
There is a 50:50 chance of experiencing a major deflationary shock in the next two years, and an even greater likelihood on a longer timeframe. The good news is that several assets provide a good insurance against this risk, and that this insurance is now cheap. Plus we highlight a compelling commodity pair-trade.
The initial phase of the EU’s ambitious CBAM will launch 1 October and will begin collecting a carbon tax in 2026. Between now and then, it will be challenged as it attempts to put a price tag on CO2 emissions as imports cross the EU border. The CBAM will impart an inflationary bias in EU commodity and goods markets as 2026 draws near and importers have to secure EU ETS credits, the number of which, by design, will contract over time.
Pent-up demand for services is keeping the global economy going, but we still expect recession over the next 12 months. Investors should keep a cautious portfolio stance.
EUR/USD is trying to breach above 1.10. What is the balance of positive versus negative factors that would allow the euro to breakout?
Fertilizer prices will continue to move lower as the natgas price shock touched off by the Russian invasion of Ukraine dissipates. As a result, we expect grain prices to soften another 10% this year. Food-price inflation will move lower over the course of the year as grain prices weaken, provided a weather- or geopolitical shock does not once again send natgas prices higher.
In this volume of BCA Crypto we compare gold against bitcoin. We begin by dispelling some common misconceptions that investors have about gold, and why, at its core, gold is driven more by belief than by intrinsic value. We then proceed to explain why gold still serves an important role in our economy and how it differs from fiat money. Later, we explain how bitcoin is different from other cryptocurrencies, and why it could rival gold as a reserve asset in the future. Finally, we discuss the outlook for bitcoin, as well as which macro factors investor should watch.
Inflation is hot, but inflation expectations are not. We explain the answer to this apparent puzzle and discuss the investment implications. Plus we identify two commodities that are at imminent risk of reversal.