The recent weak signals from China's leading economic indicators have been a cause for concern in the commodity markets even if the growth deceleration does not look particularly dramatic. The economy will continue to slow during H1 14.
Adding the recent signs of a slowdown in the US economy - albeit only temporary due partly to the hard winter weather - commodity markets are likely to get less support from the recovery of the global economy over the coming months.
Overall, though, we remain confident that the global economic growth remains on a recovery path, which is good news for global demand for commodities and thus a main factor which will add support to commodity prices over the coming years.
The relative growth outlook is set to support the Federal Reserve moving away from extremely accommodative policy measures long before the European Central Bank. This should set the scene for an uptrend in the US dollar, as the Federal Reserve will be looking to hike rates way ahead of its eurozone counterpart. A stronger US dollar will naturally be a concern for commodity prices and will be a source of downward pressure over the coming years.
Weather has been a factor in commodity markets. The polar vortex which has frozen North America during the first months of the year has supported energy prices and a drought in Brazil has spurred a rally in soybean, coffee and sugar prices. Furthermore, early forecasts suggest an El Niño could occur late this year.
Overall, we look for the oil price to tick lower over the course of 2014 and 2015 as abundant supplies from North America and OPEC continues to exert downward pressure on prices.
The gold price should head lower as well, as the recovery in global growth will give rise to a further increase in risk sentiment and less demand for gold. The slowdown in China is an overall concern to base metals but the investment-driven recovery of the US and European economy should support demand and prices as we head into 2015.
To Read the Entire Report Please Click on the pdf File Below