Prices can’t keep ignoring the data

The prices of many commodities rose this week, despite soft economic data, in part owing to confirmation of Chinese policy stimulus at the National People’s Congress. As it happens, we think the scale of Chinese policy easing will only be sufficient to stabilise the economy and that commodity prices will fall back. What’s more, the broad weakness of industrial production globally, reflected in this week’s data, does not bode well for demand for industrial or energy commodities. Looking ahead, more concrete signs of a trade deal between the US and China would give a temporary lift to commodity prices. On Friday, China’s state media reported progress on a draft agreement. Otherwise, next week is relatively quiet on the data front. However, we may see the Fed lower its economic growth projections at the FOMC meeting concluding on Wednesday, which we think would be bearish for the prices of most commodities, with the exception of gold and silver.