Stormy July for the markets. Especially for goods. A significant decline in the first half of the year, but the Fed helped.
Precious and industrial metals
Metal on the shoulder is a very stormy month. The first half of July was critical for precious and industrial metals. Gold -6.27%, silver -12.12%, copper -15.05% and platinum -7.91%. The main factor behind the development of this sector was the fear of inflation in the US and the Fed’s rate decision. Skepticism and depression in connection with the growth of inflation reigned not only in the United States, but also throughout the world. The price of copper fell the most. It is very much tied to the global economy and any stumble in the industry is visible in the price of the metal.
Productivity of precious and industrial metals. Source: bloomberg.com
But the last few days of the month have been good for the sector, with all the metals being watched rising. Despite US GDP declining for the second quarter in a row, which is technically a recession, the Fed’s comments helped the situation. The mood improved dramatically after Fed Chairman Powell’s comments at the press conference after the rate decision. He noted that the next rate hike should not be as radical as the previous one. Depends on the data for the following months. This instills optimism in the markets.
On the topic: The Fed raises interest rates by 75 basis points
It is clear that natural gas is the winner of the month in energy. The war between Russia and Ukraine caused price movements. And natural gas is the main actor. This commodity is a key factor for Europe, and Russia uses it as leverage. Europe must find other sources of meeting its needs. Everything leads to an increase in gas prices. Month end shows +26.56% for NG1 futures.
The results of the work of the energy industry in June. Source: bloomberg.com
Corn (black line) started the month down -13.69%, cotton -14.13%, wheat -18.39% and cocoa -5.03%. All commodities except wheat found support and moved back up to near zero percent change. Which is a significant recovery, primarily for cotton from -0.44% at the end of the month. Wheat is being watched very closely because of exports from Ukraine. The country is one of the main world exporters of wheat. The latest news indicates a possible disruption of blocking Ukrainian docks, so that the export of goods may begin in a few days or weeks. Markets are now waiting for any sign from this side of the world and the price of wheat could be affected immediately.
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Productivity of the agricultural sector. Source: bloomberg.com
US GDP declined for the second quarter in a row. Technically, it’s a recession. During a recession, the central bank may change monetary policy to help the economy recover from it. Moreover, Powell’s and Yellen’s comments indicate an attempt to evade his name. Even so, it points to the possibility that the next rate hike could be less aggressive than the previous one. This lends optimism to metals as an interest-free financial asset. Gold rose 3.9% after the Fed’s decision.