The sell-off in commodity markets is the latest sign that investors are expecting the US central bank’s rate hikes will push the world’s largest economy into recession.
Even though the US share market benchmark, the S&P 500, is already down more than 20 per cent from its all-time high“All we have seen so far in the drawdown is mean reversion in the multiple.
What’s more, because monetary policy works with a lag of around a year, US businesses and consumers are now battening down for a protracted period of rising interest rates, against a backdrop of stubbornly high inflation and stuttering faltering growth.Retail sales dwindled in May, as US consumers felt the squeeze from higher interest rates and higher food and petrol prices.
What’s more, the negative wealth effect will also act as a drag on activity, as households cut their spending to reflect the collapse in the value of their investment portfolios. Interest rate markets are also bracing for a sharp economic slowdown. Yields on benchmark US 10-year bonds hit a peak of 3.5 per cent ahead of the Fed’s 75 basis point rate hike last week, but finished the week at 3.2 per cent.
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