Divergences in growth and monetary policy around the world have created trends in some markets, volatility and confusion in others. China, for example, had to cut interest rates to stimulate demand while Russia and Brazil had to hike rates to battle inflation.
The oil shock changed everything, of course. The collapse in price boosted the purchasing power of consumers in developed markets, which has acted like a significant tax cut on oil importing countries. Indeed, according to the National Institute of Economic and Social Research, the price correction will invigorate Britain’s economic growth this year.
It will impact global growth, too, says Jean Michel-Six, Standard & Poor’s Ratings Services Managing Director and European Chief Economist. “If I had predicted a year ago that growth was going to accelerate everywhere because oil prices are about to fall, I think you would have called the emergency ward. But that’s what’s happening.”
A strong US dollar, a well-supplied oil market and good crop prospects have contributed to a price weakening in many other commodities as well. Investors should prepare for this volatility to continue, believes Jorge Montepeque, Global Editorial Director, Price Group at Platts.
“Make no mistake, this is a global correction across all the commodity classes. I really can’t think of a commodity class that was spared.”
Read the full article to learn more about the new landscape in monetary policy, why commodities are correcting across every asset class, and how underwriters and credit risk professionals today face the greater challenge of being able to mitigate against the impact of sovereign defaults, geopolitical events, instability and slow-downs in developing economies.