Prices likely to drop back despite trade talks

The prices of many major commodities, including oil, gold and copper, hit multi-month highs this week, but we think that almost all will fall sooner rather than later. The rally this week was fuelled by signs that the US and China are inching towards a trade deal. Indeed, there may well be a delay to the scheduled increase in US tariffs on China on 1st March and that could push commodity prices even higher, but we believe this will prove to be short lived as global demand growth loses more momentum. Commodity markets will also be paying attention next week to several other events. These include the delayed fourth quarter US GDP figures, on Thursday, which we expect to show that growth softened from 3.4% to 2.5% annualised. Our forecast that US growth will slow further later this year is a factor in our expectation of commodity price declines. What’s more, we think that China’s manufacturing PMIs, to be released on Thursday and Friday, will drop to levels that are consistent with lower industrial metals prices.