Rebound in prices likely to be short-lived

Most commodity prices recouped some of their post-FOMC losses this week. Investor concerns surrounding Fed tightening have seemingly eased, which weighed on the dollar. At the same time, news that a bipartisan agreement has been reached over a US infrastructure deal looks to have also provided a boost to prices. However, we think that the rally in the greenback will resume soon, which should put renewed downward pressure on commodity prices before long. What’s more, given that we didn’t expect the initially-proposed $2 trillion infrastructure package to have too much of an effect on commodity markets over the next few years, the watered-down $1 trillion deal is likely to be even less significant for demand and prices in the near term. Turning to next week, all eyes will be on the July OPEC+ meeting on Thursday. We expect the group to raise production quotas in response to improving demand and high prevailing prices. At the same time, it will also be fairly busy on the economic data front. We think that China’s manufacturing PMIs (Wednesday/Thursday) will have ticked down in June, which could prompt a fall in industrial metals prices. And, in the US, the employment report on Friday is likely to be closely watched but, if we are right and  employment growth held steady this month, there will not be a major impact on commodity prices.