OPEC-Russia meeting and Fed dovishness produce more MPI support

March 25, 2016 - Weekly Pricing Pulse

Sentiment, not fundamentals, is driving commodity prices at the moment. Such rallies typically succumb to a partial correction—it may be worth tactically holding off on purchases for a few weeks.

Commodity prices remained buoyant last week. The overall Materials Price Index (MPI) gained 0.7% despite headwinds seen in metals, DRAMs, and freight. Oil made a modest contribution and, as predicted, chemicals helped things along with some lagged momentum from the recent energy price rally. It was also interesting to see plastic fibers getting a near 10% boost—also perhaps a downstream reaction to what we've seen in oil.

Crude was up modestly compared to the gains seen in recent weeks, with prices staying above $40/barrel. Higher prices were partly driven by news that Russia and OPEC are pushing for a meeting to discuss further production limits. Markets will be eyeing the immediate prospect of a cut and perhaps the longer-term ramifications of such cooperation being established.

Otherwise, we saw better-than-expected Eurozone industrial production numbers, along with US consumer prices falling in February. While energy prices pulled down the top-line CPI, core inflation rose 0.3%, slightly higher than expected. Nonetheless, these very low levels should be enough to push back further rate hikes for a while longer. Indeed, the Federal Open Market Committee meeting last week generated some chatter about only two rates hikes in 2016 (as we assume) instead of four. This was enough to push asset markets higher, with some of this "frothiness" making its way into commodities.

IHS Materials Price Index

Industrial Materials: Prices

Industrial Materials: Prices

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