MPI increases for first time in four weeks

The Material Price Index (MPI) by S&P Global Market Intelligence increased by 0.1% last week, the first increase in four weeks. The modest rise was mixed, with six of the ten subcomponents increasing. The MPI is approximately 8.5% lower than it was the same week a year ago, indicating a general easing in commodity prices over the past 12 months.

Steel markets were the key upward driver last week, with the ferrous sub-index increasing 0.7%.  Iron ore prices on the COMEX Exchange reached $97/metric ton, up from $93/metric ton at the start of July.  The Chinese government have recently intensified efforts to correct overcapacity, and this is reflected in last week’s price rise. Improved sentiment for future steel demand also created some upward price pressure.  Specifically, Rio Tinto announced it had brought forward the start date for iron ore shipments from its new Guinean plant to November.  Markets did not expect this until next year and interpreted it as a sign of improving steel demand in mainland China.   S&P Global Market Intelligence anticipates economic moderation in the second half of the year and renewed weakness in the property sector in mainland China, suggesting last week’s price increase will be short-lived. Energy markets created the largest downward pressure on commodity prices last week with the sub-index declining 0.7%.  Oil prices were notably weak with Brent Crude, the international benchmark, dipping below $70/barrel again last week.  The price drop reflects market scepticism around the latest Russian sanction announcements.  The European Union last week announced its intention to impose a moving price cap on Russian crude oil imports at 15% below market average prices.  However, weak oil demand remains the primary concern hence last week’s price decline. 

Markets were less focused on tariffs last week, switching attention to the timing of interest rate cuts by the Federal Reserve.   President Trump is keen for interest rates to be cut significantly and, on Wednesday, July 16, it was once again widely reported that Trump was seriously considering firing Powell.  This was subsequently denied but resulted in brief market turbulence, indicating just how significant such action would be.  US data releases were inconclusive on the future path of inflation with strong retail sales, but weak housing starts data. S&P Global Market Intelligence expects the FOMC to remain on pause at this month’s meeting. We expect the groundwork could be laid for a cut as soon as the next meeting in September, but this would surely be heavily conditioned on inflation remaining moderate for the two months of data due before then. This week, key data releases include manufacturers orders for durable goods and new and existing home sales, which will give an indication of how trade policy developments are impacting the US economy.