In this enlightening discussion, Greg Shearer, Head of Base & Precious Metals Research at J.P. Morgan, shares his insights on commodity market dynamics. He explores the implications of the Fed's rate cuts and the diverse outcomes they might produce. Shearer highlights the risks of recession and inflation, drawing connections between these factors and commodity performance. The duo also looks at historical trends, emphasizing how a robust growth environment could significantly boost returns in commodities like gold and energy.
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insights INSIGHT
Cut Context Determines Commodity Returns
Commodities tend to rally around the first Fed cut, but outcomes depend on the nature of the cutting cycle.
A benign 'Goldilocks' cycle lifts commodities, while recessionary cycles can push them lower.
insights INSIGHT
Baseline: Resilient Global Growth
JP Morgan's baseline is a 'bronzy locks' scenario with resilient global growth and upgraded GDP forecasts.
Strong equipment spending and PMIs have driven recent upward revisions to growth expectations.
insights INSIGHT
Benign Easing Has Produced Big Gains
In benign mid-cycle easing, commodities can deliver strong returns; 1995 and 2024 are historical precedents.
Those cycles averaged about 15% returns nine months after the first cut, led by energy and gold.
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With the Fed cutting cycle commencing this week, consensus expectations of a straightforward series of quarter-point rate cuts conceals a broad spectrum of potential outcomes. Commodities have rallied 15% on average over previous benign cutting cycles yet have faced much stiffer headwinds over past recessionary-tinged rate-cutting cycles. That being said, the risk of renewed inflation is also high, especially in the US, which will celebrate its 250th anniversary in 2026. Reflation, accompanied by stronger underlying growth momentum, has produced the strongest and most broad-based positive environment for commodities, averaging +1.6% monthly returns. Natasha Kaneva is joined by Greg Shearer to discuss how commodities have performed over previous Fed cutting cycles and what to expect this time around.
Speakers:
Natasha Kaneva, Head of Global Commodities Research
Greg Shearer, Head of Base & Precious Metals Research
At Any Rate