Agricultural commodities (DBA) and Industrial metals (DBB) are feeling the heat from the recent bout of central bank quantitative tightening. The Federal Reserve raised interest rates by 25 basis points in June to 1.75%-2.00% and the market is pricing in another 2 rate hikes over the course of the next six months. The Fed is also withdrawing money from the banking system directly at a rate of $20 billion per month, increasing to $50 billion per month by October. QT and rates hikes are a double whammy that will impact risk assets in unforeseen ways. Expect volatility to ramp higher. When the bubble pops and risk assets reprice, the Fed will step back on the gas and fire up the printing press once again. The resulting impact on stocks, bonds and commodities will be dramatic.
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