With the United States economy remaining on the edge regarding a possible downturn, an expert has warned that the situation might worsen.
In particular, Mike McGlone, a senior commodity strategist at Bloomberg Intelligence, has cautioned that the U.S. economy may be on the brink of a “worst-case scenario” recession.
Through an X post on August 5, McGlone suggested that the economic downturn anticipated but not materialized in 2023 is now unfolding, with significant implications for commodities markets.
Generally, the strategist stated that the awaited recession was merely postponed. Therefore, as the economic impacts catch up, the likelihood of a severe recession increases, with cascading effects on commodities and broader financial markets.
“The US recession that didn’t happen in 2023 may be entering a worst-case scenario — a delayed reaction — with implications for commodities,” McGlone noted.
Additionally, he pointed out that the stock market may experience “normal back-and-fill” movements, which could exacerbate commodity price corrections. This back-and-fill behavior refers to the natural fluctuations and corrections as prices adjust to new economic realities.
Impact on commodities markets
The expert’s analysis suggested that the spikes seen in commodity prices in 2022 are now transitioning to a phase of low-price corrections. He highlighted the potential for gold to reach $3,000 per ounce while crude oil could plummet to $50 per barrel. Elsewhere, McGlone forecasted significant price drops in copper and corn, potentially falling to around $3 per unit.
In the meantime, the analyst provided data from Bloomberg Intelligence illustrating a correlation between WTI crude oil futures and the yield on 10-year Chinese government bonds. The data shows a marked decline in crude oil prices, approaching the critical $50 per barrel mark, while bond yields have also trended downward.
The data revealed how crude oil prices fluctuated from 2007 to 2024, often aligning with shifts in Chinese bond yields. Notably, significant price drops occurred during periods of economic distress, such as the global financial crisis in 2008-2009 and the onset of the COVID-19 pandemic in 2020.
As 2024 unfolds, the continuing decline in crude oil prices and Chinese bond yields signals potential economic strain.
Rising recession fears
It’s worth noting that the recession fears escalated after disappointing job data showed rising unemployment. In reaction, the stock market wiped out almost $3 trillion in a day on August 2.
Fast-forward to Monday, August 5. Japan’s Nikkei 225 dropped as much as 7%, extending losses from the past week after the Bank of Japan announced it would hike its benchmark interest rate to the highest level in over a decade.
Finally, the concerns have also extended to risky assets, with cryptocurrencies led by Bitcoin (BTC) recording a notable capital outflow.
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