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Commodity markets look to the US and China

It was another fairly quiet week in commodity markets, with prices caught between diverging narratives. Rather perversely, robust economic data in advanced economies weighed on commodity prices. This is due to expectations that economic resilience will feed into price pressures, forcing the Fed to keep rates higher for longer. But Tuesday’s strong China manufacturing PMI release has since prompted a partial rebound in prices. That said, we feel that recent optimism around Chinese manufacturing is overdone given ongoing issues in the property sector and that industrial activity was relatively resilient during lockdowns.

Data from the US and China are likely to be key price drivers again next week. We expect China trade data for January and February to show import demand started the year strongly following the end of zero-COVID. Meanwhile, US non-farm payrolls data released on Friday should be more in line with a weakening labour market than last month’s shock release. This would weaken the dollar and help give prices a lift.

Otherwise, markets will be keeping a firm eye on the annual meeting of China’s National People’s Congress this weekend, which will involve publication of key economic targets for the coming year. We will be discussing the outlook for China’s economic growth and policy, and its implications for commodity markets, in a Drop-In event with our China Economics team on Monday. (Clients can sign up here.)

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