All quiet on the commodities front

There were few large moves in commodity prices this week. China’s activity data for the first two months of the year, published on Wednesday, were reasonably strong but failed to give a material lift to industrial commodity prices. The focus will move to the US next week. Jerome Powell will chair his first FOMC meeting and is likely to announce a 25bp rate hike. We think that this is now largely priced into markets and as such should not weigh on the prices of commodities, even gold. There is also a risk that President Trump will announce more extensive tariffs on US imports from China. The tariffs reportedly being considered – as a response to China’s theft of intellectual property from US firms – would cover up to $60bn worth of goods (about 12% of China’s total goods exports to the US). So far, China has been relatively muted in its response to targeted US tariffs on washing machines, solar panels and metals. However, if these wider tariffs are imposed, retaliation appears inevitable with negative consequences for global trade volumes and commodity prices.