𝐀𝐫𝐞 𝐜𝐨𝐦𝐦𝐨𝐝𝐢𝐭𝐢𝐞𝐬 𝐢𝐧 𝐚 𝐬𝐰𝐞𝐞𝐭 𝐳𝐨𝐧𝐞?

Some market participants believe in the peak inflation narrative. Looking at the price chart of the CRB Index, it is understandable why that is the case. However, it doesn't square with the fact that the Fed Funds rate is still way below the current CPI.

It is dangerous to stick to a narrative without constant monitoring. The CRB Index has been trending up recently. This should at least call into question whether inflation has indeed peaked.

The market is always talking to us by way of prices. Between listening to opinions and looking at market prices, the latter should always be more reliable. As the saying goes, "look at what people are doing, not what they are saying". Prices represent the aggregate action of market participants.

On a day like today where almost all asset prices are down while major commodities are up, the market could be suggesting that commodities are in something of a sweet spot.

If the Fed backtracks on the tough stance toward fighting inflation, it is a green light for commodities to move up. If the Fed sticks to the market expectation of a 50bp or even 75bp hike in September, the Fed Funds rate remains significantly below CPI and commodities should remain supported.

The downside risk to commodities is if CPI drops significantly or the Fed is even tougher than what the market expects.

$Invesco DB Commodity Index Tracking Fund(DBC)$ $Invesco DB Agriculture Fund(DBA)$ $iPath Bloomberg Commodity Index Total Return ETN(DJP)$ 

CRB Index