End of zero-COVID rumours likely to be a false dawn

Most commodity prices rallied on Friday as rumours circulated that China was considering a relaxation of its zero-COVID policy. However, in the absence of any official statements to that effect and the relatively low levels of vaccination, we are sceptical that the policy will be abandoned any time soon. As a result, prices could fall back next week. That is not to say that prices weren’t right to move up on hopes of the policy easing. It would inevitably give a lift to commodities demand at a time of constrained supply.

Looking ahead, China will publish October trade data on Monday. We expect weakness in both exports and imports, which would point to subdued commodities demand. Elsewhere, the US October inflation data will be closely watched for any signs of fading inflationary pressures. So far, inflation has remained stubbornly high, but we expect to see a fall in October, which may temper interest rate expectations and US dollar strength, with positive implications for commodities.

And finally, COP27 will launch this weekend in Sharm El-Sheikh, Egypt. We are sceptical that the rhetoric will translate into game-changing behaviour. Instead, countries appear to be acting unilaterally in their efforts to combat climate change. (See our recent Climate Economics Update for more detail.)