What’s Next For Commodity Prices as Attention Shifts to ECB Rate Decision

ECB Interest Rate Decision Takes Center Stage

And guess what? This week is about one thing and one thing only: It’s all about the European Central Bank’s interest rate decision – with traders fiercely debating whether the ECB will follow in the footsteps of the Federal Reserve with a jumbo-sized rate cut this week.

As one of the “Big 3 Central Banks”, this macro event is guaranteed to be a major market mover – especially as cracks are finally starting to appear in the Eurozone’s labour market after years of unexpected resilience – spurring the European Central Bank to lower interest rates more aggressively and rapidly than previously expected.

The long-standing consensus among traders was that the ECB would wait at least until December before deciding on further easing measures, after two consecutive rate cuts in June and September.

But weak economic activity data in France, Spain and Germany combined with an unexpectedly low Purchasing Managers’ Index reading for the Eurozone has changed that view, with many traders now pricing in a third rate cut as earlier as this week.

According to proprietary data compiled by GSC Commodity Intelligence – the firm’s analysts predict that the Eurozone’s unemployment rate will rise to 6.7% over the next several quarters. Furthermore, a worse outcome is possible if the economy underperforms — supporting a case for rate cuts at every European Central Bank monetary policy meeting starting this week and until the deposit rate reaches 2%, from 3.5% now.

Global Monetary Policy Easing Unleashes Commodities Rally

Elsewhere, UK inflation data on Wednesday is likely to be the decisive factor on whether the Bank of England will speed up rate cuts this year to match the aggressive pace of the Federal Reserve and European Central Bank.

Last month, the governor of the Bank of England signalled a readiness to resume interest rate cuts despite keeping borrowing costs unchanged in September at 5%, amid persistent concerns over lingering high inflation.

Whichever way you look at it, one thing is clear. A new era of global monetary policy easing is underway in the world’s big economies. That’s given a green light for Commodities to continue their upward surge – paving a way for prices to notch new all-time record highs in the months ahead.

That’s welcoming news for the bulls, but painful for anyone sitting on the sidelines, who must now decide how much FOMO they can handle.

As traders know – “the bigger the rate cut, the bigger the rally in Commodities”.

If history is anything to go by, then this new era of global monetary policy easing almost certainty sets the stage for Commodities to retain their well-earned status as the best performing asset class of 2024!