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January 7, 2016 - Weekly Pricing Pulse
Recent MPI bounce may only be temporary following early-2016 China pessimism. A wait-and-see approach is advisable as the embryonic "recovery" could stall.
The Materials Price Index (MPI) showed some tentative signs of recovery during the last week of 2015, edging up by 0.5%. Most commodities ended up in positive territory, with the only notable exceptions being freight and rubber. Higher iron ore prices are giving the ferrous metals index some upward momentum—it rose 2% and marked the sector’s third consecutive weekly gain.
Nonferrous metals also posted gains for the second week in a row and oil saw a small bounce following consecutive recent drops. Saudi-Iranian tensions did spike, possibly affecting Iran's expected production ramp-up over coming months. These stronger year-end numbers provided a slight cushion to an otherwise dismal 2015 performance. Provisional data show the MPI fell 34% during the course of the year, following a similar-sized decline in 2014. This was the third-worst year on record for the MPI, following 2014 and the near-50% decline in 2008.
Last week was relatively quiet in terms of trading volume owing to the Christmas/New Year holiday, which meant that it took relatively little to move markets. Global financial markets in general did see decent gains during the final week of 2015, although this optimistic tone evaporated on Monday of this week as China-oriented pessimism came back with a vengeance. Weak Chinese manufacturing data rekindled fears about global growth and triggered a sharp sell-off in both equity and commodity markets. We expect markets to remain volatile until after the Chinese New Year holiday in early February.