Thanks to the life support of $12 trillion and 515 rate cuts by the world’s central banks since March 2009, the global economy’s heart is beginning to beat again. As the market senses a robust economic recovery is underway, expectations are climbing that this growth will continue. Even the Federal Reserve has hinted that it may taper quantitative easing because of the improved economic situation. As a result, interest rates are increasing.
Europe was the lone wild card, but following Germany’s change of heart away from austerity, a positive outlook for growth, and therefore, rates, is rising in that area of the world as well.
In the chart below, you can see the close correlation between the Eurozone’s positive economic surprises and bond yields. The Citi Eurozone Economic Surprise Index, which compares economic data to expectations, has improved, bouncing from a low in April. At the same time, the yield on Germany’s 10-year bond has also begun to increase.
Given this rising interest rate environment, we wondered how gold, oil and other commodities, as well as energy and materials stocks have historically performed. With a hot economy, will we see hot commodities?
We found some compelling results for resource investors.