Downside risks building

Upbeat manufacturing data from the US and China bolstered risk appetite this week, helping the prices of industrial commodities record another strong week. However, precious metals prices also did well, as further declines in real interest rates in the US boosted their prices. Meanwhile, geopolitical tensions between the US and China flared up once again, which may present a downside risk to our forecast for most industrial commodity prices to push higher by year-end. In fact, we expect that the US-China ‘Phase One’ trade deal will fall apart before long.   Next week brings data releases from China, in the form of spending, activity and credit data for July. We think that credit kept growing strongly last month, underpinning the broad-based rally in industrial metals prices. Meanwhile, we expect that industrial production growth in July will have picked up by more than the consensus suggests which, if we are right, should prove to be a further positive for the price of industrial commodities.