A pause for breath

After a rollercoaster few weeks, it was a more muted affair for commodity markets this week. Indeed, there was little in the way of big price moves, which we think reflects a couple of factors. First, in many cases, it remains difficult to identify a clear direction for commodity demand. For example, the strength in Chinese demand, illustrated by the latest surge in commodity imports, contrasts with the ongoing tightening of virus-related restrictions in Europe. Second, with the US election fast approaching, many seem to be waiting to see how the resulting changes to fiscal policy will impact commodity demand. In our view, oil prices will struggle to make much ground regardless of the election result, whereas industrial metals prices should eventually start to climb again as the Chinese economy continues to outperform. The release of activity data in China is the main event for commodity markets next week. We think that the data are likely to show a further strengthening in industrial output last month, while the continued acceleration in credit growth is likely to have lifted fixed investment too. This would support our view that stronger-than-expected economic growth in China will support generally higher industrial metals prices.