Poor start gives way to some more encouraging signs

The prices of key industrial commodities fell further in the first full week of 2016, led by oil, as China worries resurfaced again. The markets also concluded (rightly, in our view) that the escalation of tensions between Saudi Arabia and Iran will simply make it even less likely that OPEC will be able to agree to cut output any time soon. However, the week ended on a more positive note as the Shanghai equity market and the renminbi stabilised. What’s more, commodities were unfazed by the strong US jobs report, released on Friday. The large gains in non-farm payrolls suggest that growth fears are overdone, but wage pressures are still too low to alarm the Fed. In contrast, gold performed well throughout the week, consistent with our relatively upbeat view on the prospects for precious metals in 2016 as a whole.