Commodities are the hedge of first resort during Fed hiking cycles: The MUFG Global Markets Podcast

With the US Federal Reserve (Fed) kick-starting its hiking cycle, investors are seeking protection. While financial assets (equities, bonds and credit instruments) are forward-looking and driven by growth “rates”, commodities are spot physical assets driven by demand “levels”.

This distinction matters as the Fed hikes slows down the growth rate of demand (which drives anticipatory financial assets), not demand levels (which drives unanticipatory assets like commodities) – so long as the level of demand exceeds the level of supply, which is corroborated with nearly all major commodities in super backwardation (signalling market tightness).

In this week’s podcast, Ehsan Khoman, Head of Emerging Markets Research (EMEA), discusses why commodities remain the best hedge during periods of the Fed hiking cycle. His examination of each of the nine Fed hiking cycles since 1972 signals that global commodities have on average outperformed all major cross-asset classes.

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