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The new year brings old challenges. Geopolitics and global realignment, inflation and recession, the US dollar, tightening monetary policy of central banks, demand, energy… Everything is still on the table, and we still do not see the light at the end of the tunnel. Our eyes have just adjusted to the darkness, so we are managing better.
In such an environment, commodity markets, both financial and physical, are currently functioning. In short – volatility and uncertainty. Generally, if we look at the year level, it is clear that energy and agricultural prices have generally risen, while industrial metal prices have fallen.
Gold and the US dollar have slightly increased year-on-year, while the Baltic Dry Index has significantly decreased as a result of the final stabilization of logistics disruptions during the pandemic.
What have we learned in 2022 and what awaits us in 2023?
To start, inflation is not something that only happens in third-world countries; it can also hit the most developed countries in the world. Central banks will obviously have to continue raising interest rates to curb inflation. The question is when we will see the peak of interest rate hikes this year?
The IMF believes that 2023 will be a tough year for much of the global economy (tougher than the year we left behind) as the main drivers of global growth – the US, Europe, and China – will experience a slowdown in economic activity. Expectations are that even one-third of the global economy will be in recession. Even in countries that are not in recession, hundreds of millions of people will feel as if they are.
As early as October, the IMF lowered its outlook for global economic growth in 2023, citing ongoing burdens from the war in Ukraine and inflationary pressures and high interest rates created by central banks like the US FED to mitigate price increases.
China, the world’s second-largest economy, is likely to grow at or below global growth for the first time in 40 years as the number of coronavirus cases rises after the lifting of strict zero-infection policies. Moreover, the expected rise in coronavirus infections in the coming months is likely to further impact its economy and slow regional and global growth.
Only the US might avoid recession. The US economy added 200,000 jobs in December, and the unemployment rate remained at 3.7 percent, nearly the lowest since the 1960s.
In short, the next 12 months will be very challenging. The minefield we are navigating is rife with risks of explosion on geopolitical/military, economic/financial, and climate/ecological fronts. There are at least ten possible crisis scenarios for this year. We do not know what awaits us, but among other things, Western and Chinese debt needs to be restructured, and every crisis will accelerate that process. However, it should not be forgotten that every crisis also represents an opportunity.
Oil on the rise, gas on the decline
Looking at the change in oil prices year-on-year, one wonders what energy crisis, what inflation? We start the second week of the year with rising oil prices, at around $81/bbl (which is just a few percent higher than it was at the beginning of last year). The current price is a result of increased hopes for rising demand from China and hopes that the FED will ease its aggressive approach to tightening monetary policy.
China has announced additional financial support for households and companies to support economic growth. Meanwhile, the slowdown in wage growth and the sudden contraction of the service sector in the US have eased expectations that the FED will continue to aggressively raise interest rates.
