‘True wildcard’: World’s largest wealth fund issues inflation warning on hot commodity markets

Nikolai Tangen, CEO of Norges Bank Investment Management, during a news conference, Tuesday, Jan. 30, 2024, in Oslo, Norway.

Bloomberg

The CEO of the world’s largest wealth fund said there is a lot of volatility in financial markets today, but Investors’ “biggest concern” is what rising commodity prices could mean for the inflation outlook

Norges Bank Investment Management (NBIM) Chief Executive Nicolai Tangen told CNBC’s “Squawk Box Europe” on Tuesday that rising energy and raw material prices could create headaches for major central banks. They continue to fight inflation.

As of Tuesday afternoon, S&P Goldman Sachs IndexA benchmark index tracking global commodity performance has risen 9% since the start of the year, outperforming the broader market S&P 500 Index index

Oil and copper are up about 13% so far this year, respectively, while gold has repeatedly hit record highs in recent months.

Asked if he had any concerns about the hot commodity market, NBIM’s Tangen replied: “Yes, the biggest concern is what it means for inflation, right?”

He added, “So if the price of fuel and raw materials goes up, the price of the final product will go up. This could be a real wild card for inflation expectations.”

NBIM manages what is known as the Norwegian Government Global Pension Fund, the world’s largest sovereign wealth fund, worth 17.7 trillion kroner ($1.6 trillion) at the end of March. The company was founded in 1990 to invest surplus revenues from Norway’s oil and gas industry.

To date, the fund has invested in more than 8,800 companies in more than 70 countries, making it one of the world’s largest investors.

European Central Bank President Christine Lagarde also hinted at the impact on commodity prices in the broader context of the institution’s next monetary policy move last week. He said the central bank would still cut interest rates unless there was a major shock, but stressed that the ECB needed to be “very concerned” about commodity price trends.

“Obviously, it has a direct and immediate impact on energy and food,” Lagarde said.

Eurozone inflation slowed, with growth exceeding expectations by 2.4% in March, bolstering expectations of a near-term interest rate cut. Market prices for interest rate cuts have been highly volatile in recent weeks, and it now appears that the European Central Bank will ease monetary policy ahead of the Fed.

Traders on Tuesday afternoon put a 13% chance of a US interest rate cut in June, according to CME Group, with most data pointing to US inflation around 3% and little change in the month. FedWatch Tool. This is up from about 70% last month.

A worker supervises a furnace at the foundry of the Serbian Copper Plant in Zijin, Serbia, on Thursday, April 18, 2024. Copper prices have risen recently, driven by an improved outlook for global production and mining disruptions.

Bloomberg

Tanjen said the Norwegian Wealth Fund still believes it will be “difficult” for the central bank to bring inflation down to its target, and that major central banks will take different steps depending on local inflation pressures.

Tangen acknowledged multiple factors currently supporting inflation, saying, “There are some geopolitical tensions, near-term, climate impacts on global crop yields, some changes in trade routes and so on, and wage inflation may also be higher than we expect. “

He added: “We expect the rate cut to be smaller than market expectations, of course, Earlier this year. I have to say, I’m surprised that the market has reacted so positively to this. I expected the market to react more negatively to the postponement of rate cuts. “

—CNBC’s Jeff Cox contributed to this report.