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Our Materials Price Index (MPI) increased 0.8% last week,
continuing a strong start to the year. Since the end of November,
commodity markets have seen extraordinary volatility while rising a
cumulative 12%. Even so, the MPI still remains 9% below its May
2021 peak.
Higher oil prices were the main reason for last week's increase.
Our energy sub-index was up 0.7% as Brent Crude, the international
oil benchmark, reached $88.55 a barrel. This is its highest level
since October 2014 and sparked speculation that oil could rise
above $100 a barrel once more. Prices have increased 13.4% in the
last four weeks on market expectations that demand growth will
outstrip increases in supply this year. The recent drone attack on
the United Arab Emirates raised concerns over future supply
sparking the latest price rise. The rise in oil prices also meant
higher feedstock costs for global chemicals; the MPI's chemical
sub-index is reflecting these conditions and rose 1.5% last week,
its sixth consecutive increase.
In contrast to commodity markets, global equity markets for the
most part suffered losses last week as they confront prospects for
tighter monetary policies and slower growth. The expectation to
this general rule was mainland Chinese stocks, which advanced in
the belief that policymakers there will provide additional stimulus
to help offset softening growth. Recent strength in commodity
prices in part reflects this same belief. Interest rate spreads
between low- and high-quality debt also remains relatively narrow,
suggesting markets do retain an appetite for risk. It remains to be
seen, however, whether commodity markets will be able to withstand
the twin headwinds of waning fiscal stimulus and tight monetary
policies in most of the rest of the world as 2022 progresses.
Posted 26 January 2022 by Michael Dall, Associate Director, Pricing and Purchasing, S&P Global Market Intelligence
