Fed tightening presents a difficult backdrop for prices

Most commodity prices have struggled to make gains since the US August CPI data were published on Tuesday. The unexpectedly strong reading prompted a rise in Treasury yields and US dollar appreciation, both of which are negatively correlated with commodities prices. We expect the Fed to raise its target rate by 75bp at next Wednesday’s meeting, but a higher 100bp point hike cannot be ruled out. A chunky rate hike is now largely priced into markets, but we think it could still keep a lid on prices next week. Aside from the Fed meeting, it looks to be fairly quiet. September flash PMIs for Europe and the US will be published on Friday. We think the US reading could surprise on the upside, but that Europe’s PMI will confirm the slowdown there. All told, we do not expect a big reaction in commodities markets.