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China reopening to boost commodity prices

The dismantling of China’s zero-COVID policy has come quicker than we and many had expected. Whereas we previously thought the first quarter would bring the worst of the economic disruption from surging COVID cases, it now appears the worst is behind us and that the end of zero-COVID and a renewed focus on pro-growth policies will spur Chinese economic growth sooner than expected. While we still expect many developed market economies to fall into recession this year, we will be revising up many of our commodity price forecasts next week. We will run through the details in an Update early next week.

Looking ahead, China is scheduled to release GDP data for Q4, and industrial production, retail sales and fixed investment data for December, all on Tuesday. Given that commodity markets are now fixed on the reopening story, we’re not expecting economic weakness late last year to drag on prices too much. Elsewhere, US producer price inflation for December is due on Wednesday. A further slowing in PPI inflation would probably give a lift to all commodity prices, as it may lower US interest rate expectations.

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