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Pakistan Commodities_July’19 Signals prolonged deceleration

 

• Global economic growth entered a late-cycle slowdown in the outgoing month, as US China trade tensions creeped into consumer and business confidence while global trade metrics (CPB World Trade monitor slowing from Oct’18 onwards) deteriorated at their fastest pace since the Global Financial Crisis.
• Signaling weakness in global economic outlook, the US Fed cut its policy rate, it’s first since 2008, signaling the precautionary commencement of a new round of global monetary easing (followed recently by India, Thailand and New Zealand), while steeper inversion in US bond markets illustrate fears of a macro down cycle, understandably pressured commodity markets (TRJ Index slipped 1.4%MoM).
• Energy prices ebbed lower in the month of July’19 with Brent/Arab Light benchmarks falling 0.5/0.9%MoM, Coal slipping to average US$65/ton for the month, where weak economic expectations, higher than expected inventory levels and trade tensions (including fears of retaliatory measures) stymied expectations.
• For soft commodities FAO food index slipped 1.1%, while international urea prices remained stable, where seasonal demand and production imbalances led to mixed pricing for these commodity subgroups. Steel prices treaded lower as well, with trade tensions and tariffs on steel imports taking their toll on demand.
• Drastic uptick in store-of-value commodity Gold (benchmark prices up 6.2%MoM with July’19 average 14%YoY higher) contrast with industrial activity bellwether Copper (down 1.3%MoM, near 2yr lows), signifying flight to safety. At home, weaker commodity prices, particularly for energy prices are a blessing, giving some relief on the CAD front, while recent weakness in the US$ relative to global currencies offers some respite for the PkR.

AKD Research