Policy in China and US to dictate commodity prices for now.
The expectations for near-term Chinese and US policy actions seem to cancel out; but I’ll argue that the Federal Reserve will not be quick to abandon their policy for fear that recent economic improvement cannot be sustained. The moment the consensus gets a whiff of new and potentially systemic events shaking up Europe, they’ll look straight back to the Federal Reserve. I don’t anticipate consensus expectations for Fed policy will change much. As long as US data doesn’t a) shoot out the lights or b) fall out of bed, the Federal Reserve is still on the table.
I think ultimately risk comes back and commodities take a big turn lower. But it seems as though the medium term (at least through the end of Q1) will see higher prices. If the downturn for commodities comes sooner, I think it will be sparked by an event in the eurozone that exposes the vulnerability of its sovereigns … again; if the downturn for commodities comes later, it could very well be sparked by a sharper dip (or sharper forecasted dip) in Chinese growth.
No new recommendations or adjustments at this time.