Peak recession fears bring commodities down to earth
Insight by Ole Hansen, Head of Commodity Strategy at Saxo Bank.
The commodity sector remains under pressure from a whole host of negative developments. In early June, the weakness spread from industrial metals – already suffering from China’s zero-Covid policy and continued lockdowns – to all other sectors. The trigger was the stronger than expected inflation print, forcing the FOMC to respond with a 75-basis point rate hike – a move that subsequently led to an increased focus on recession (a word that now features in most market related updates).
In addition, the general reduction in risk appetite amid challenging market conditions have seen the dollar strengthen to levels not realised in decades – most notably against the euro and Japanese yen. A stronger dollar raises the cost of dollar-denominated commodities, thereby adding additional pressures on demand in regions like Europe already struggling with punitive gas and power prices.
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Ole Hansen