Promising Commodity Prices And Hypnotic Inflation

Todd Moses
May 29, 2024

Surging commodity prices threaten to bring inflation back through a door investors thought central banks had slammed shut.

Inputs that matter: Commodities this year already erased much of 2023's declines, perhaps the most obvious sign that the steepest global interest-rate hikes in a generation failed to slow down the world economy substantially.

  • Economists are again being forced to boost growth forecasts.

The opportunity: Yields climbed higher Tuesday after a Treasury Department auction of 5-year notes worth $70 billion saw low demand.

  • The bid-to-cover ratio, a closely watched demand gauge, came in at 2.3, below the 10-auction average of 2.45.

Zoom in: High rates are helping the wealthiest Americans who are powering the economy's surprising growth and making it hard for the Fed to enact the rate cuts it wants.

  • "In terms of income, those making over $100K expressed the largest rise in confidence," Dana Peterson, chief economist at the Conference Board, said in a release.
  • "On a six-month moving average basis, confidence continued to be highest among the youngest (under 35) and wealthiest (making over $100K) consumers."
  • Wealthy households can earn upwards of 4.5% in a high-yield savings account, see their equity portfolios go up 20% in a year, and see the value of their real estate holdings rise.

Between the lines: Minneapolis Federal Reserve Bank President Neel Kashkari said in an interview with CNBC broadcast on Tuesday that the U.S. central bank should wait for significant progress on inflation before cutting interest rates.

  • Kashkari told CNBC that the central bank could even hike rates if inflation fails to decrease further.

Follow the money: Currently, U.S. rate futures have priced in a 0% chance of a 25 basis point rate cut at the next Federal Open Market Committee (FOMC) meeting in June and a 10.2% probability of a 25 basis point rate cut at the July FOMC meeting.

  • This week will focus on the April reading of the U.S. core personal consumption expenditures price index, the Fed's first-line inflation gauge, scheduled for release on Friday.
  • On the earnings front, notable companies like Salesforce (CRM), Dick's Sporting Goods (DKS), Chewy (CHWY), HP Inc. (HPQ), Pure Storage (PSTG), Okta (OKTA), UiPath (PATH), and (AI) are set to report their quarterly figures today.
  • On the economic data front, investors will likely focus on the U.S. Richmond Manufacturing Index, which is due later in the day.

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