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Demand fears in the driving seat, for now

Most commodity prices fell this week as global monetary tightening and fears about economic growth intensified. The high June inflation reading in the US nails on another large rate hike at the FOMC’s meeting in July. And central banks in Canada and parts of Emerging Asia have also delivered hawkish surprises this week. Moreover, we expect our China Activity Proxy to show economic growth close to zero in 2022, and we are now forecasting a mild recession in Europe during the winter. These growth concerns are weighing on the outlook for commodities demand, and investors have generally responded by becoming more risk averse, with sharp falls in net-long positions and open interest in futures markets in most commodities.    
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Commodities Weekly Wrap

Pressure from rising Treasury yields likely to resume

This week the prices of most commodities got a boost as investors pared back expectations for rate hikes in the US, following lower than expected inflation data. That said, we still expect a further small rise in the US 10-year Treasury yield by the end of the year, which could put renewed downward pressure on the prices of commodities, and particularly gold, in the coming months. Supply disruption caused by the war in Ukraine seems to be easing, as grain ships have continued to leave Ukrainian ports. Meanwhile, there were renewed efforts to revive the 2015 Iran nuclear deal. While there are still hurdles, if a deal were agreed, we would expect a rapid rise in Iranian oil output, which would weigh on oil prices. Next week, we’ll be paying close attention to the latest activity and spending data from China on Monday. We expect that the data will show that the post-lockdown recovery lost steam in July, alongside a renewed deterioration in the property sector, which could weigh on industrial metals prices next week.

12 August 2022

Commodities Update

Gloomy outlook for use of agriculturals in industry

Deteriorating global economic growth over the coming quarters will weigh on industrial demand for cotton, natural rubber and lumber. That said, high oil prices will offer some support to cotton and natural rubber prices, and our expectation for rate cuts in the US in late 2023 could boost the price of US lumber.

10 August 2022

Commodities Update

China’s copper imports are the only bright spot

Commodity import volumes remained lacklustre in July, consistent with subdued activity in heavy industry and construction. We think import growth should tick up in the coming months in response to higher infrastructure spending and a modest pick-up in activity. But renewed lockdowns pose a downside risk. Oil and the Gulf Drop-In (9th Aug): What’s the outlook for oil prices and what does that mean for Gulf economic outperformance? Join economists from our Commodities and Emerging Markets teams for this 20-minute briefing. Register now.

8 August 2022

More from Commodities Team

Commodities Weekly Wrap

Strong US dollar to remain a headwind for prices

There was no clear direction in commodity prices this week, even within the same types of commodities. The takeaway is that commodity prices were dancing to their own tunes. Take energy, for example. Natural gas and coal prices rose on fears that Russia will export less gas to Europe. By contrast, oil prices fell on heightened concerns about slower global economic growth and oil demand. What we can say about this week is that most prices were dragged on by a stronger US dollar. Indeed, the US Dollar Index hit highs last seen in the early 2000s. Our FX Markets service is the place to go for our analysis on the dollar, but, in summary, we think that it will remain strong for a while and potentially strengthen further. This will act as a headwind for most commodity prices, particularly gold. Turning to next week, US inflation data for June will be released on Wednesday. We expect a slowdown in monthly core consumer price growth to 0.4% from 0.6%. Elsewhere, our China Economics team will host a Drop-In on Friday to discuss Q2 GDP and June IP and fixed investment data. We expect GDP growth to have slowed further in Q2, but the data for June should point to a recovery.

8 July 2022

Commodities Economics Chart Book

Softer demand, but supply to remain tight

Non-energy commodities prices generally fell in June on the back of concerns about the outlook for demand amid global monetary tightening and slower economic growth. Energy prices may also fall a little from here, but constrained supply will mean that they stay higher for longer.  

6 July 2022

Commodities Weekly Wrap

Demand concerns to weigh on prices for a while yet

Prices struggled to find direction this week as concerns about demand deepened at a time of still constrained supply of many commodities. The price of Brent crude fell sharply on Thursday in response to US real spending data for May, which were weaker than expected. However, it subsequently recovered and ended the week only a touch lower. With many commodity markets currently more focussed on the outlook for demand than supply, we expect macroeconomic data releases to be a key driver of prices in the coming weeks. However, next week is quite light on market-moving data, at least until Friday when the US employment report for June will be released. We forecast slower growth in payroll employment, but a still-solid 250,000 gain, which will be sufficient to keep the Fed on a path to a 75bp rate hike in July. Rising US interest rates will continue to weigh on commodities prices in the coming weeks, especially if they prompt further dollar strength. Drop-In (Weds, 6th July): How far has 2022’s food supply shock raised the stakes for monetary policymakers and governments? Join this 20-minute session to find out about the market outlook and the economic risks around elevated food prices. Register now

1 July 2022
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