Commodity prices initially appeared to have shrugged off the recent sell-off in emerging market (EM) assets, perhaps focussing on the fact that Fed tapering depends on a continued pick-up in economic activity. Since then, weaker manufacturing data from both the US and China have led to price falls. As it happens, the slump in the US ISM in January was almost certainly exaggerated by adverse weather and seasonal distortions, while China’s rebalancing may result in slower but more sustainable growth. Nonetheless, we continue to think that most commodity prices will struggle this year, primarily because of ample supply.
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