Commodities Overview

A shaky start to the new year

Commodities Weekly Wrap
Written by Capital Economics Economist

Commodity prices have been volatile this week, driven more by macroeconomic and financial market developments than by commodity-specific fundamentals. Mounting concerns about the outlook for global growth, the recent slide in equity prices and falling US yields pose major headwinds. However, there was some reprieve on Friday as the Chinese authorities loosened policy (through a 100bp cut to the required reserve ratio) and the US December employment report was particularly strong, suggesting that the economy is at least on a solid footing for now. That said, the bigger picture is that global growth is set to slow this year, with negative implications for commodity demand and prices.

Turning to next week, trade talks are scheduled to resume between China and the US in Beijing. Any reports of progress or compromise could give a lift to commodity prices. In our view, President Trump’s recent personal involvement suggests that some sort of deal will be reached before a planned tariff hike at the start of March, which could allay some of the worst fears about global growth prospects.