Paris attacks add to economic risks on oil geopolitics and Schengen bottlenecks

November 19, 2015 - Weekly Pricing Pulse

With European economic concerns rising and a US Federal Reserve hike imminent, now may be a good time to buy metals and chemicals. Wait and see on crude oil, as the fallout from the Paris attacks comes through.

The IHS Materials Price Index (MPI) continued its downward trend with a 1.8% fall last week. Every component of the MPI fell, but another sharp decline in oil stood out-down by 5.9%. Relatively large declines were also recorded in nonferrous metals and lumber, which fell by 2.5% and 3.0%, respectively.

Looking ahead, the focus is firmly on the knock-on effects from the Paris terrorist attacks. These attacks have increased macroeconomic uncertainty, given that Eurozone growth was already slowing down. However, it appears oil may see a temporary bounce in case the war against ISIS ramps up. Another concern is the suspension of Europe's borderless Schengen area, which might lead to supply-chain disruptions, bottlenecks, and delays for the continent’s growth.

The European Central Bank is now almost certain to announce more quantitative easing at its December meeting, a development that would amplify the effects of the probable US Federal Reserve hike in December and send the dollar spiking upward. This means that downside commodity pressure remains. For the coming week we are expecting a 1.4% decline in the MPI, which would leave prices lower than at any time since late 2008.

IHS Materials Price Index

Industrial Materials: Prices - Week of 19 November 2015

Industrial Materials: Prices

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