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Although the US announced 10% tariffs on an additional $200
billion of Chinese imports, statements late in the week led stock
markets to take heart that this latest trade salvo may turn out
better than expected. The result was that various global equity
indexes pushed higher, including Dow and S&P 500, both of which
hit record highs. Commodity markets remain a bit more pessimistic,
however, with our IHS Materials Prices Index (MPI) dipping 0.7%
last week, its second consecutive decline.
Five of the MPI's ten components fell last week with some major
moves related to Hurricane Florence. Lumber prices fell 12.9% in
reaction to a two main factors: fading storm related fervor and
lackluster housing market data. Chemicals price dropped 1.3% and
fiber prices dropped 3.2%, in part because of a lack of buying in
areas impacted by Florence. To the upside, Brent crude posted a
fresh four-year high of $80.94 /bbl last Monday and 0.9% for the
week after Opec decided to resist further increases in
production.
For this week, the reaction in commodity markets to the
anticipated Fed Funds rate hike will be interesting. Although
widely expected, this third rate increase this year (to be followed
by yet another increase in December) will reinforce the more
challenging environment facing commodities as financial market
normalize. How prices move may provide a clue as to whether
commodity markets view the near future as a glass half full or half
empty.