Source: Golden Ten Data
The head of global research at Standard Chartered Bank said, “What I'm worried about is that the Federal Reserve may only cut interest rates once or twice, US inflation remains the same, while long-term interest rates actually continue to rise.”
Some of Standard Chartered Bank's customers increasingly prefer physical assets such as copper and oil. This trend worried the bank's chief strategist because he thought there might be room for further increases in US interest rates.
Eric Robertsen, head of global research at Standard Chartered Bank, said that the rise in commodities reflects what the market believes “there are unreasonable parts of the stock market and bond market.” Coupled with investors' reluctance to increase government debt, this preference for real assets has further intensified.
In an interview, Robertsen said, “People want a larger share of physical assets in their portfolios. For me, the risk is that US inflation may actually last longer than we anticipated.”
Federal Reserve officials have been voicing concerns that high borrowing costs may not be enough to dampen demand, increasing the anxiety of investors and analysts. Robertsen said, “Perhaps the next step for the Federal Reserve is to raise interest rates rather than cut interest rates, because officials realized that the only way to really reduce inflation is to significantly slow the economy. If this were to happen, the commodity market would be impacted.”
According to Robertsen, Standard Chartered Bank currently expects the Federal Reserve to cut interest rates twice this year, for a total of 50 basis points. This is one less than the bank's previous forecast. Meanwhile, traders in the US interest rate market have begun to bet that the Fed will not cut interest rates at all this year, while large banks such as UBS Group have indicated that the possibility that the Fed will raise interest rates is increasing.
“The latest US CPI data came as a surprise to us, and I think it changed the Federal Reserve's strategy,” Robertsen said.
Furthermore, Robertsen said the “scary thing” for corporate customers and issuers is that the yield on 10-year US Treasury bonds may not fall below 4.25% this year, and may even remain at a higher level. He said, “What I'm worried about is that the Federal Reserve may cut interest rates only once or twice, US inflation remains the same, while long-term interest rates actually continue to rise.” This means “the issuance, restructuring, and refinancing windows of the enterprise will be very narrow.”
For Robertsen, the surge in commodity prices, from metals to energy, represents a “broader real shift in the commodities sector.” Surprisingly, he said, the cost of safe-haven assets such as gold and “cyclical commodities” such as copper has rarely risen as rapidly at the same time as in recent months.
Robertsen said that geopolitical risks may explain the rise in energy prices, and global economic growth can explain the rise in copper prices, but “part of the current rise in gold is due to safe-haven demand, and more because US inflation seems to remain high for a long time.”