The coffee market is inherently sensitive to monetary factors. Throughout the past week, the inflation fears put pressure on the US Federal Reserve System (Fed) to change interest rates, which are already very low. That once again aroused panic among financial investors and then they quickly withdrew capital, creating a sharp downward price correction on two derivative coffee exchanges. As a result, the domestic coffee price fell from the highest level since the beginning of 2021 of VND 35.2 million per ton in a short time.
This is not the first time that financial markets have feared inflation in the US and other coffee consuming countries. Indeed, at present, the only factor that can move economies and financial markets, including commodity exchanges, is the return of inflation. Actually, people in the market still see it. But the reaction was stronger this time. Due to the Covid-19 epidemic, central banks of all countries have reduced the basic interest rate to the lowest level plus the maximum money supply into the economy to fight recession.
Although on the surface, there has been no action in the market from central banks, but the fear of inflation has really boiled in the guts of economies and financial markets. An amateur investor can also understand that when cash and liquidity are too abundant in the market, the volume of money increases and once the volume of money increases, sooner or later, the economy slips into the inflationary pit.
The huge amount of cash in the market has been stuffed up by the governments and central banks of many countries with tens of trillions of dollars to prevent the Covid-19 epidemic. Once the pandemic is stopped, consumption and business investment must boom. Last week, through the economic reports of China, the US, the UK… all were recognized because the majority of people there were vaccinated. Therefore, this time, the strong inflationary pressure is more obvious.
The financial market last week found out in advance the answer for the question “if inflation occurs, where to invest?” and the reaction is not much different from the traditional way. Investors sell USD and risky assets traded in USD to put money into real estate, precious metals such as gold, now also have a “derivative” trading channel that can replace gold commercial products, that is investing in technology currencies like Bitcoin and Ethereum…for example.
Moreover, once there is inflation, banks will reduce money injection, increase interest rates… Thus, the price of coffee on the two derivatives floors last week fell vertically not necessarily due to a certain supply-demand factor but that’s because investors on the floor ran first, “making the price” first, before it’s too late.
