The process of regaining the confidence of financial markets and the public will ultimately depend on how the Federal Reserve and other central banks act this week. That task has become much more difficult, however, as natural gas prices on both sides of the Atlantic hit new record highs this week, trading 11 times higher than normal. The explosive rise in natural gas prices also pulled up other energy markets, sending Brent crude prices back above $100 a barrel.
We traders know that there is a strong correlation between inflation and energy prices. When energy prices rise at a rapid pace, so does inflation. With inflation spiraling out of control, all eyes will be on every detail, statement and comment made during this week's Federal Reserve summit in Jackson Hole.
We expect central bank policymakers to use this highly anticipated event to further reiterate their restrictive stance and that more rate hikes are needed "in a big way." There is even growing expectation that central banks could surprise markets by signaling that an even larger and historic "100 basis point" rate hike could be on the table at their September meeting.
Where will rates move next? Follow us at www.alternavest.com/en/inside-alternavest.