Is palm oil about to break the bond market...?
December 4th, 2020
1 minute read
Up
Hopefully you’re enjoying the benefits of rising markets. This has been a surprising year of opportunity. First collapse, then the Nasdaq went to new all time highs. The Dow then went to 30,000. Our JCI index has been on fire in November & Brent oil is now back at USD50 & rising. But one thing remains low, global bond yields...
Inflation
The US 10 year bond is probably the most liquid market in the world & investors buying up bonds have pushed down the yield this year to now 0.9% as a safe haven for cash. That represents low risk appetite, negative economic growth & also low inflation. In more normal times, it’s the inflation which bonds focus on most closely.
Oil
Let’s say for simplicity that inflation is two things, food & energy. Overall inflation is low at just 1%. That’s because energy inflation is negative. Because of low oil prices, energy inflation is about minus 9%! The oil price is on average down -30% this year, but now the price is back to USD50, the drop is only -17% .
Food
Food inflation doesn’t seem to attract as much attention as fuel, but it might be about to. USD food inflation has already reached +4%. Palm oil is the largest food oil in the world & the price is up on average 20% this year. As a result of the Indonesian export tax, prices are likely to be up 30% now.
Break
We don’t know how important palm oil is, but for years food inflation is less than overall inflation & inflation was less than bond yields. Now food inflation is far above inflation & looks likely to go higher while inflation is above bond yields. Risk to yields is up & palm oil could be about to become very famous indeed.
1 minute read
Up
Hopefully you’re enjoying the benefits of rising markets. This has been a surprising year of opportunity. First collapse, then the Nasdaq went to new all time highs. The Dow then went to 30,000. Our JCI index has been on fire in November & Brent oil is now back at USD50 & rising. But one thing remains low, global bond yields...
Inflation
The US 10 year bond is probably the most liquid market in the world & investors buying up bonds have pushed down the yield this year to now 0.9% as a safe haven for cash. That represents low risk appetite, negative economic growth & also low inflation. In more normal times, it’s the inflation which bonds focus on most closely.
Oil
Let’s say for simplicity that inflation is two things, food & energy. Overall inflation is low at just 1%. That’s because energy inflation is negative. Because of low oil prices, energy inflation is about minus 9%! The oil price is on average down -30% this year, but now the price is back to USD50, the drop is only -17% .
Food
Food inflation doesn’t seem to attract as much attention as fuel, but it might be about to. USD food inflation has already reached +4%. Palm oil is the largest food oil in the world & the price is up on average 20% this year. As a result of the Indonesian export tax, prices are likely to be up 30% now.
Break
We don’t know how important palm oil is, but for years food inflation is less than overall inflation & inflation was less than bond yields. Now food inflation is far above inflation & looks likely to go higher while inflation is above bond yields. Risk to yields is up & palm oil could be about to become very famous indeed.
