Weak flash PMIs in major advanced economies, especially in the US, have led to increased worries about the demand for industrial commodities. As a result, the recent softness in industrial metal prices has now spread to oil. Yesterday, the price of Brent dropped below $70 per barrel for the first time in nearly two months and most base metals have slipped to multi-month lows. We continue to expect sluggish growth to be a crucial factor driving prices lower this year if, as we anticipate, the US economy slows markedly.
Next week looks set to be a relatively quiet week with public holidays in the US and UK meaning that many major commodity markets will be closed on Monday. The most significant data release is likely to be the Chinese “official” manufacturing PMI, which will be published on Friday. We are forecasting this to drop by slightly more than the consensus, from its already low level. If we are right, this could spur a further sell-off in industrial commodities and provide a boost to the price of gold.
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