Look Past Oil to China for Clues to Commodities
China manufacturing back on the rise.
Commodities used for industrial purposes, including non-precious metals and rubber, have been on a tear since the second half of 2016. Oil prices, though, have recently started to fall. Investors are now wondering where does the market go from here, and what data should they be watching? There’s a simple answer to both questions.
The most important driver of commodity prices is global growth, and a good proxy for that is Chinese growth, or more specifically, Chinese manufacturing. The China story that’s been told over the past few years has focused on slower GDP growth rates for the domestic economy, but that is both an oversimplification and a much more pleasant story than the reality. The hard truth is that China spent 18 of the past 27 months in a manufacturing recession.