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June 23, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) dropped again last week, falling another 1.3%. It is now down 18% from its year high in February. As opposed to the broadly based retreats of the previous two weeks, only half of the index's subcomponents declined. Oil continues to be a source of weakness, declining 2.6% last week, with the softness passed through to chemicals and shipping rates, which fell by 3.6% and 1.9%, respectively.
Crude inventories did fall by 1.7 million barrels last week in the United States; however, a surprising increase in gasoline stocks reinforced concerns about an oversupplied US market, leading to a tumble in crude prices. The persistent softness in oil prices is forcing many producers to re-calibrate costs as hopes for a dramatic rebound diminish, on more indication that prices may be lower for a longer period than previously thought.
Mixed economic reports last week did little to provide clarity regarding global growth prospects. In the United States, industrial production was flat in May, slightly weaker than anticipated. Meanwhile, Eurozone industrial production moved in line with expectations, increasing by 0.5% month on month (m/m). Chinese industrial production also increased by roughly 0.5%, narrowly beating expectations. Consumer inflation in the United States remains soft; it fell 0.1% m/m in May for a variety of reasons, including lower medical care inflation, falling gasoline prices, and the drawn-out effects of a price war between wireless telephone carriers. The Federal Reserve remained undeterred despite the weak inflation report and lifted the federal funds rate by 25 basis points as expected. Prospects for global growth remain bright, although data last week did little to lower the uncertainty prevailing in global markets.