You’re not the only one sweating this week. July is always hot in the northern hemisphere but yesterday was the hottest day recorded globally since records began in 1979.
The average temperature hit 17.18 degrees Celsius, based on satellite data, which breaks the previous record set on Monday. Today could be another record. The previous hottest day was in August 2021.
One of the fears of climate scientists is runaway warming, as more heat leads to things like forest fires that release more carbon dioxide and there is a quick acceleration.
No one wants to see that, or trade that, but if it happened, it’s better to have money than not to. So what would be the effects on markets?
For starters, there would be huge global migration from places like India — which is in grave danger from heat — to northern climates. The flow of people would likely be destabilizing but would come with huge inflows of capital and labour. That would benefit the US, Canada, Scandinavian currencies and potentially even Russia’s ruble.
In the commodities world, agriculture would be the obvious trade. Crop failures would spike the prices of all agricultural goods, especially staples like wheat. Normally, fertilizer prices would go with grains prices but if there’s less arable land, that might not be the case.
One commodity that is below-the-rader is lumber and I strongly suspect it would benefit as well from both supply shortages due to fires and migration/building. Another is uranium because in a world that gets deadly-serious about climate change, nuclear power is the obvious go-to.
The big loser in the commodity space would be natural gas. Warmer winters would mean dramatic declines in heating demand for gas and a potential cratering of prices. Some might be mitigated by power demand or LNG exports but it won’t be nearly enough, especially in an unstable world.