June has been marred by a severe fall in the markets. High inflation, its causes and consequences have been playing hard on the markets.
However, the last fortnight has seen some interesting developments. With a sharp increase in interest rates, the fear of the global economy slowing down has been steep.
Consequently, commodity prices have started cooling off. Prices of key commodities like nickel, aluminium, zinc, natural gas and crude oil are significantly off their 2022 highs.
Similar has been the behaviour of agri-commodities. A correction is seen in the prices of wheat, corn and sugar.
What’s up?
Signs of respite?
Commodity prices are cooling off in expectation of lower economic growth, and lower demand. And that’s legit. The US is a major consumer of everything there is, and that slow down is bound to impact prices.
China is coming back after its massive no-tolerance-towards-COVID-policy-led lockdowns. It has been taking measures to boost output, and that’s likely to offset some of that cooling off above.
The on-ground situation from a supply standpoint hasn't changed. Russia and Ukraine are still battling it out, trade routes in the sea are blocked for Ukraine, the West continues to impose sanctions on Russia, and the supply of key commodities from the two countries remains severely impacted.
The price declines seen need to sustain for inflation to decline. Till then, there is room for more hikes by the RBI.
Corporate earnings are likely to get impacted negatively in the near-term because of all these factors; that too in an overvalued market.
These factors are likely to keep pressure on the markets on, in the near-term.
Comments