Since the Fed's latest rate hike, commodities have experienced a downtrend. On Feb. 21, this trend gained further momentum due to Putin's aggressive attitude during U.S. President Joe Biden's visit to Kyiv.
Since Russia's invasion of Ukraine on February 24, 2022, global central banks have been focused on the steep surge in inflation that has resulted from the disruption of the global supply of various commodities due to the West's imposition of economic sanctions against Russia's aggression in Ukraine. However, this collective attempt to cap Russia's efforts to capture Ukraine has been self-destructive, as Russia stopped the supply of oil and gas to the West, resulting in a sudden surge in oil and gas prices in August 2022, which added to the increasing inflation at that time.
The current scenario now revolves around the next step by NATO and the West, including the U.S., since Biden promised new military aid for Ukraine worth $500 million during his visit to Kyiv on Monday. He also stated that more sanctions would be announced against the Russian elite and companies later this week. The situation remains fluid and unpredictable, and the impact on the global economy remains uncertain.
Recession and Recessionary Fear
Recession is typically the result of a complex set of factors that build up over time, rather than a sudden event. While global central banks have focused on monetary tightening as a means of controlling inflation, there has been little effort to address the underlying issues that contribute to inflation in the first place.
Looking back in history, we can see that the global recession of 1929 was caused by a number of factors, including extensive inflation following the First World War, which left the world with vast stockpiles of weapons and other supplies.
The Russia-Ukraine conflict has once again divided the world into two opposing groups. The United States has expressed concerns that China may be considering supplying weapons to Russia, a move that could lead to an escalation of the conflict between Russia and China on one side, and Ukraine and the U.S.-led NATO military alliance on the other.
Recession - Slow and Scary This Time
I believe that if the current diplomatic moves by both sides continue, it could lead to recessionary fear and negatively impact the prices of commodities. As human psychology tends to react to global events, exhaustion in currency valuation could occur, ultimately resulting in further steps towards recession.
Despite the alarming possibility of a recession, the world appears to be on the verge of the final stage of this economic downturn. The current geopolitical situation is crucial in determining whether the global community can avoid a recession or accept it as a devastating reality of this century.
It is essential for global leaders to focus on finding solutions to avoid a recession and work towards economic stability. The world needs to come together to find peaceful and diplomatic solutions to the ongoing conflicts and issues to avoid further economic damage.
Disclaimer: The author of this analysis may or may not have any position in the securities mentioned. Readers may take any position at their own risk. Risk-taking in trading must be taken care of before creating any trading call.