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Commodities Crushed

Prices across the commodity complex ended the week lower following mounting concerns about the outlook for global growth as the trade downturn expands. The week began with a flash crash in gold prices which later extended the crash to other raw commodities such as copper, oil, and natural gas.

Weekly Review

The main story of the prior week was the carnage across the commodity space with precious metals and energy specifically feeling the brunt of the drop. Contributing the weakness in precious metals was the continued ascent of the US dollar coupled with inflationary measures just hovering above the cusp of deflation with gold prices experiencing three flash crashes over the course of the sessions on the back of a wave of selling. Oil prices also fell as rising inventories signaled the potential for another round of supply far outstripping demand for crude. Coupled with increased deliveries from Iran, the stage is set for another tumultuous run for oil prices. In conjunction with the drop in commodity prices, the Reserve Bank of New Zealand moved to reduce the benchmark interest rate by an additional 25 basis points to 3.00% from 3.25%. Meanwhile, the UK is telegraphing the potential for higher interest rates to markets with inflation forecast to rebound faster than previously anticipated. However, Chinese manufacturing at the lowest level in 15-months is raising concerns about the health of the global economy.

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The Week Ahead

The upcoming week is full of important fundamental data, most notably the FOMC interest rate decision and subsequent rate statement on Wednesday. With the bond market and traders increasingly reflecting on the possibility of higher rates in September, the statement will likely provide further clues regarding the trajectory of monetary policy going forward. Aside from the critical decision on Wednesday, other pertinent data from the United States include the preliminary second quarter GDP reading on Thursday which is expected to show the economy expanded at a 2.50% pace versus the prior period which experienced a lackluster contraction of -0.20%. Durable goods orders due later in today’s session are anticipated to provide confirmation of the rebound in the real economy with estimates show growth in both the regular and core measures. Aside from the manufacturing sector, pending home sales and the home price index are expected later in the week, complementing data from the prior week regarding existing and new home sales. Outside the US, the United Kingdom is also set to report on second quarter GDP which is forecast to remain in expansionary territory despite a slight downtick in annualized expectations.

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