Commodity Rout Continues

Following yesterday’s weakness in oil prices which saw WTI fall below $49 per barrel on renewed oversupply concerns, other commodities started to experience a selloff, namely copper prices which fell to 6-year lows. The sheer amount of production capacity added over the last few years coupled with a slowing Chinese housing market have contributed to steeper losses in the base metal after it was revealed that supply outstrips demand by a wide margin. Quickly following overnight was the weakness in natural gas catching down to the softness in crude oil prices. However, most notable was the crash in gold prices which briefly breached the very important $1080 level on the downside. Just after 02:00 GMT gold prices smashed approximately 0.50% lower before recovering modestly and experiencing another wave of selling after 03:00 GMT which saw gold give up another $6 points.

The HSBC Manufacturing PMI released overnight from China revealed the weakest manufacturing picture in 15-months, falling from 49.4 to 48.2. This comes amid other startling data points as Chinese policymakers struggle to contain the losses in the equity markets after spending nearly 10% of annual GDP to prop up the markets. Nevertheless, despite a substantial amount of capital deployed to rebuild confidence in the volatile stock markets, many investors continue to hold a bearish view, contributing to further losses in the key benchmarks overnight. From the perspective of the real economy, the latest figures on energy consumption also appear to confirm the fragility of the manufacturing sector with demand growing at the most sluggish pace in 30-years. When added to the woes mounting in the housing sector, the selloff in commodities overnight requires more limited explanation due to the confluence of factors dragging on prices.