The abrupt transition into a powerful "Super El Niño" this summer is shaping up to be a major systemic shock for global commodity markets. Forecasters warn that ocean temperatures in the central Pacific could peak up to three degrees Celsius above average, resulting in intense climate anomalies across major agricultural regions worldwide. In Southeast Asia and West Africa, looming droughts threaten heavy disruptions to highly concentrated supplies of palm oil, cocoa, natural rubber, and rice. In contrast, the weather pattern is bringing increased rainfall to the Americas, which historically boosts crop yields for U.S. and Argentinian soybeans and corn. These climate strains are layering directly on top of pre-existing supply pressures, as ongoing Middle East conflict has already spiked the cost of critical nitrogen-based fertilisers and could turn an energy crisis into a food crisis in less than 2 years.
EQUITY
The S&P 500 and Nasdaq pulled back from worse losses and ended slightly lower for a second session as investors were scared away by high-valuation technology and semiconductor stocks in relation to the interest rate outlook. Geopolitical tensions continue to fuel volatility after the U.S. military launched retaliatory strikes against Iranian air defence systems following the downing of an Apache helicopter, though a near-term peace deal is still alive.
GOLD
Gold is in a freefall after falling over 2% to an 11-week low as a hawkish shift by central banks and a technical break below the 200-day moving average support severe bearish momentum. The drop triggered a massive sentiment reversal in May as Indian gold ETFs shed $54 million in their first monthly net redemptions in a year. Consequently, with a stronger dollar and rising bond yields, traders are bracing for the Federal Reserve to keep interest rates elevated for longer, which looks poor for gold.
OIL
Brent tracks lower to $90 a barrel even with escalating tensions, which flared after retaliatory Iranian attacks followed new US strikes in response to a downed helicopter. API reported a 9.1 million barrel drop in US crude inventories to a four-month low last week, which could spur buyers to seek supply more intensely. However, the market is still pressured by an upcoming US inflation report that could reinforce the case for a Federal Reserve interest rate hike later this year.
CURRENCY
The U.S. dollar held firm near the 100 mark, although it stopped growing since last week's exodus to USD even with renewed military escalations. Inflation fears are becoming more apparent approaching the consumer price index report that could cement a destructive Federal Reserve interest rate hike before the end of the year. Concurrently, the Japanese yen remains severely depressed near the critical 160 intervention threshold, as Japan's wholesale inflation hit a three-year high of 6.3%.
