Opinion: The market seriously underestimated the impact of the commodity shock, stagflation is really on its way.

The column from Bloomberg Opinion stated that the market is currently severely underestimating the supply shock caused by the disruption of oil transportation in the Strait of Hormuz. According to author Simon White, the low interest rates, high stock market valuations, and the relative lack of appreciation in the US dollar compared to commodities indicate that this transportation disruption has pushed up prices of most commodities significantly and the possibility of a rapid easing in the short term is slim. The market typically sees events like this as temporary geopolitical disturbances, but this crisis has evolved into a real supply shock - boosting overall inflation while suppressing consumer demand, creating a typical stagflation pattern. Lessons from history: Quantitative comparison of four shocks The author reviewed the four major commodity supply shocks of the oil embargo in 1973, the Iranian Revolution in 1979, the Iraqi invasion of Kuwait in 1990, and the Russia-Ukraine conflict in 2022. Using the Bloomberg Commodity Index (BCOM) as a benchmark, the author calculated the correlation coefficients for various assets. The conclusion is that the price adjustments of various asset classes currently fall far below historical levels - inflation-protected government bond break-even rates, UK government bond yields, and precious metal prices all show significantly lower increases compared to BCOM; with most global stock markets, other than the US and Latin America, heavily underpricing downside risks, having the emerging market risk exposure. This regional differentiation has its logic: Asian and European economies are mainly net energy importers, while the US and Latin America are energy exporters. The US Federal Reserve has never cut interest rates in any of the four supply shocks. The current shock has a key difference from history: since 2019, the US has become a net energy exporter, completely reversing the logic of the relationship between the US dollar and commodity prices. While the US dollar benefits from safe-haven buying and trade conditions improvement, even though Brent crude has risen by 56% since the conflict, the US dollar index has only risen by just over 2% - a stark contrast from the 32% increase in Brent and 15% increase in the US dollar during the Russia-Ukraine conflict in 2022. Historical data shows that the US Federal Reserve has never cut interest rates during any of the four supply shocks, choosing to raise rates three times. Even in 1990, when the Fed was in a cutting cycle, it paused operations. Fiscal policy may be able to boost the economy in the short term, but most developed economies already face fiscal deficit pressure, and fiscal expansion often accompanies rising yields, weakening the boost to risk assets. The market faces a dilemma. There is currently a core contradiction: either commodity prices fall back, confirming that current asset pricing is rational; or negative shocks are gradually realized in economic data. If it is the latter, whether through rapid repricing or gradual adjustment, both stocks and bonds will face significant pressure. As Simon White mentioned, commodity investors' pessimism about geopolitical risks may far exceed that of financial asset investors - the energy futures curve still reflects the market's expectation of a decline in oil prices. This "temperature difference" itself is a risk.