Research

We have noted before the significant gap between markets’ expectations of upcoming monetary policy and the FOMC’s own projections for interest rates. This creates upside potential for the dollar, but downside risk for precious metals in 2019, if the Fed follows its own projections instead of those of outsiders.

Here, we look at two factors, U.S. economic growth and the strength of the dollar, which are likely to dictate the near-term path of energy prices.

Our focus here is on another driver of lower U.S. interest rates in 2019. Term premiums, the compensation investors need to hold longer-term debt, have unexpectedly fallen as well with the 10-1 year term premiums, as estimated by New York Fed economists, falling by 14 bps since May 1 to -43 bps. This is the lowest level since at least 1961.

This week, with tensions near another high point (despite rumors or yet another truce) we check again to see if trade tensions is directly impacting asset and commodity prices or if their impact is only indirect.

Trade tensions have been especially impactful on the U.S. and China. Monetary policy uncertainty has risen around the world, but especially in the United States. Brexit has had major impacts on both the U.K. and Europe. Here, we incorporate a global measure of uncertainty into a formal forecasting model to see how a possible reduction in uncertainty would impact commodity prices over the next year.