A reversal in the direction of food prices – especially if it coincides with some recovery in energy prices – would start to push headline rates of inflation up, placing pressure on the ultra-low interest rate policies in place around the world and, in turn, unsettling global fixed income and equity markets.
A strong El Niño period alone is unlikely to prompt the tightening of global monetary policies. But at a time of low interest rates and almost no inflation, its impact could be significant across global financial markets.
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In short, we ignore the El Niño phenomenon at our investing peril.
Chris Bailey is a European strategist at Raymond James
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