Uncertainty about US policy, especially trade policy, has contributed to substantial rises in inflation uncertainty and the all-important University of Michigan’s measure of long-term US household inflation expectations has now risen to the highest since 1995.
Ehsan Khoman, Head of Research – Commodities, ESG and Emerging Markets (EMEA), believes that as tariff threats, inflation expectations and inflation uncertainty rise further, commodities act as a critical inflation hedge as physical assets historically deliver strong real returns when inflation rises, while equity and bond real returns tend to be negative.
Today’s environment offers a more favourable backdrop for commodities with less slack in the economy – and supportive fiscal policy – the move to reshoring supply chains, and higher inflation expectations. With this, the US administration’s attempts to remodel the global trade order – with commodities at the centre of this doctrine – is witnessing the Bloomberg Commodities (BCOM) index outperform all major asset classes year-to-date.
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