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March 16, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) fell last week, slipping 1.6%. Remarkably, this was the largest weekly fall in the index since May 2016, highlighting the strong upward momentum in commodities markets over the past 10 months. While falling oil and chemical prices—down 3.6% and 2.3%, respectively—were primarily responsible for the drop in the headline MPI, 7 of the index's 10 components declined last week.
Oil prices moved lower last week following news of record oil inventories in the United States and gains in the Baker Hughes rig count. Both pieces of news raised concerns around excessive supply, pushing prices to a five-month low. Nonferrous markets also had a disappointing week, with our sub-index slumping 3.0% on concerns around weaker demand from China following statements by Premier Li Keqiang that China's growth target for 2017 will be just 6.5% (a downgrade from last year).
The biggest macroeconomic news last week centered on February's US employment report, which showed another month of strong job creation, making an interest rate increase during the US Federal Reserve's 14–15 March meeting quite likely. We believe the prospect of faster interest rate increases in the United States (which should provide strength to the US dollar), slower Chinese growth, and a souring mood in energy markets will keep the MPI soft in the weeks immediately ahead.