Commodities shrug off better news from China

The stronger-than-expected economic activity data released this week by China failed to boost commodity markets. Part of the reason is probably that some of the good news had already been priced in. And in some cases, market-specific headwinds have countered the better data from China – for example, the announced re-opening of Vale’s Brucutu mine has weighed on iron ore prices. But the key point is that, while China’s economy now appears to be stabilising, we doubt that a sustained recovery lies around the corner. As the recovery fails to materialise, we suspect that the prices of many industrial commodities will come under renewed pressure over the second half of this year. Looking ahead to next week, it is generally quiet on the data front and markets are closed on Monday in Europe. The focus will fall on first quarter US GDP numbers, released on Friday, where we expect US growth to hold at 2.2% q/q annualised (above a consensus of 1.8%). If we are right then this could provide a small lift to industrial metals and oil prices.