Commodities traded mostly higher during a week where the focus altered between optimism over China reopening and an extended rate hike cycle in the US having a negative impact on global growth and demand. In addition, the energy market continues to focus on the price-supportive impact of OPEC+ production cuts and upcoming EU sanctions against Russian crude sales. Overall, the Bloomberg Commodity Index which tracks a basket of major commodity futures spread evenly between energy, metals and agriculture, traded higher by more than 4% near a three-week high.
Following Wednesday’s expected 75 basis point rate hike, the fourth in this cycle, Fed Chair Powell went on to deliver what turned out to be a temporary hammer-blow to sentiment across markets after saying that any talk of a pause is “very premature”. However, it is also clear that the FOMC will be economic data driven, and any signs of weakness could alter this view after the Fed in its statement raised the prospect of pausing to assess the” cumulative tightening” impact.
The time lag between rate hikes and the economic impact remains a worry that the bond market is trying to price through an increasingly inverted US yield curve. This week, the 2–10-year spread jumped to -61 basis points, the most inverted we have seen it since the 1980’s and it highlights the risk of a central bank policy mistake leading to weaker growth without successfully managing to get inflation under control. These developments helped support gold and silver, both bouncing strongly on short covering following an initial and failed attempt to drive them lower through key support.