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December 3, 2015 - Weekly Pricing Pulse
Wait and see for most commodities - November's PMI and US employment reports coupled with announcements around OPEC's winter meeting could bring considerable price volatility this week.
The IHS Materials Price Index (MPI) finally broke a five-week losing streak but only managed to finish flat. Sizeable boosts were provided by oil (up 2.6%) and chemicals (up 1.6%) with rubber also etching out a 1.5% gain. However, these increases were offset by declines in metals and freight. The MPI's stabilization comes despite the prospect of an approaching Federal Reserve rate hike, although lot of this hike has most likely already been priced in. Nonetheless, late last week more financial jitters emerged on a sharp decline in global stock markets.
The week ahead is dominated by two summits that could have short and long-term ramifications for commodities. The oil world is focused on Friday's OPEC meeting for any signs of a policy change given the emerging financial strains even among the cartel's richer members. However, given that US production is now declining, the cartel's market share strategy seems to be working—albeit at the cost of very low prices. Therefore, no major changes are expected.
At the same time, this week’s COP21 meeting in Paris is unlikely to have an immediate impact on commodity prices. That said, any agreement on new emissions cuts will have important implications for carbon intensive fuels further out. Looking directly ahead, the market’s downward momentum remains largely intact with volatility likely to be reinforced in the runup to the 15–16 December Fed meeting. We expect a bumpy ride over the remainder of the year.