We see stability in commodities prices but are selective in related stocks and bonds.Industrial metals have generally outperformed their commodity peers this year, with copper prices hitting a two-year high last week. A big reason for the rally: production has been falling from last year’s levels. This is a result of firms cutting capital expenditures after multi-year price slides.
We see signs that reduced supply and increased demand may be more than temporary and are likely to help keep industrial metals prices stable from here. Metals and mining firms have been improving their balance sheets by reducing debt and decreasing investment in additional production capacity. Ongoing supply-side reforms in China, meanwhile, are curtailing overproduction of certain metals.
We see many factors supporting industrial metals prices from here, but favor a selective approach to metals and mining equities and bonds.
The U.S. dollar fell and equity market volatility plumbed lows last week. Many U.S. and Japanese earnings results exceeded expectations.
Friday’s U.S. wage growth data will be in focus after weak inflation readings and a cautious Federal Reserve outlook.