As we scramble to navigate the frenzy of upcoming elections, the global economy appears to be embroiled in a state of confusion. Core inflation in the Eurozone has fallen for the first time in 10 months, while the number of failing banks in the US has risen to three. The deceleration of bank loans in the US and the rate of interest hikes in Europe has resulted in a soft landing scenario being replaced by fears of a recession. So, what happens now?

Global commodity prices have been on a downward trend for a while now. We have been tracking the Bloomberg Commodity Spot Index, which includes 23 different commodities, to monitor the rise in commodity prices. The index hit an all-time high in May 2022, but began to fall soon after. The decline over the past year has exceeded 22%. Of course, this decline is a result of both the correction of prices that rapidly increased due to both the pandemic and war, and the exit from these situations. However, in recent times, there has also been a growing sentiment that the short-term drop is due to recession expectations being priced in.

The term "soft landing" is used by Fed Chairman Jerome Powell to indicate a reduction in inflation without pushing the US economy into a recession. The Fed wants to avoid a slowdown in the economy while also lowering historically high levels of inflation as quickly as possible. While the Fed raises interest rates, it continues to shrink its balance sheet. However, adjusting the pace of these tightening measures is not an easy task.

Technically, we call it a recession when an economy shrinks for two consecutive quarters. Of course, a recession is not a desired outcome due to its negative consequences. However, if the steps taken to reduce high inflation are not properly calibrated, there is a high probability of a recession occurring.

Of course, a recession does not happen suddenly. It can be predicted with leading indicators. In particular, PMI data and declines in futures prices for commodities such as oil can signal a recession.

With the start of the Russia-Ukraine conflict, we saw rapid increases in energy prices, including oil. However, prices have since experienced a significant decline. While this was expected, the recent decline in oil futures prices is primarily due to an increase in recession expectations.