Recent optimism unlikely to last

Commodity prices have generally had a positive week, boosted by the US-China trade talks and the dovish tone adopted by the Fed at its FOMC meeting. However, the strong US employment report on Friday has tempered hopes that the Fed has finished its tightening cycle. Either way, we still expect the US economy to slow later in the year, with negative implications for most commodity prices, but notably oil. China’s weak manufacturing PMI data published late in the week weighed on prices, but perhaps not by as much as might have been expected. It could be that the markets think that the weaker the data, the more the authorities are likely to loosen policy. Next week could be fairly quiet in commodity markets as China will be on holiday for the Lunar New Year and there will be few market-moving data releases.