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July 08, 2016 - Weekly Pricing Pulse
Upcoming market headwinds will likely put some pressure on commodity prices; holding off on purchases may be prudent.
Last week saw more volatility in global markets, although conditions did calm as the week progressed. The Bank of England, in particular, held out the prospect of monetary easing, while expectations of a delayed rate hike by the Federal Reserve grew; IHS now assumes a December increase. These developments, along with other policy support, were enough to boost markets after additional selling on Monday. Nonetheless, the MPI still finished down 0.1%, dragged lower by oil (down 1.8%), chemicals (down 1.6%), and smaller declines in pulp and lumber. Ferrous metal prices increased 1.1%, while nonferrous metal prices rose 1.9%.
Market rallies were also driven by optimism that Britain's exit from the European Union could still see the country remain in the single market—an outcome that would lead to fewer short-term challenges and less economic disruption than a "hard exit." Nonetheless, preliminary IHS post-Brexit forecasts show a few tenths of a percentage point off global growth this year and next.
Given that sentiment seems particularly fragile at the moment, slower growth means that any additional shocks could have an outsized impact. June’s Caixin General Manufacturing PMI report for China, showing a further deterioration in conditions, was therefore another piece of unwelcomed news. Although the initial shock of the Brexit vote has faded a bit, it has created real economic uncertainly that will continue to play out in commodity markets over the summer.