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Commodities have been underperforming equities and pricing in below levels unwarranted by the uptick in industrial production, manufacturing indices and the business sentiment indicators.

25 Jan 2014

LONDON (Commodity Online): Commodities continue to underperform despite some positive trends in global economy due to extended period of supply gains, according to Barclays Research.

Commodities have been underperforming equities and pricing in below levels unwarranted by the uptick in industrial production, manufacturing indices and the business sentiment indicators.

The HSBC China flash Purchasing Managers Index (PMI) data and US Markit PMI has been below consensus but business confidence is set to be positive in January.

Fed tapering has been initiated on recovery signals in US economy which should augur well for commodities demand.

"We are still some way from a period of higher interest rates, so at this point of the cycle, neither the onset of tapering nor the eventual environment of policy normalisation should be the focus for commodity markets. The exceptions to this are likely to be gold and silver, which are vulnerable to further declines on tapering as well as the move to higher interest rate," Barclays said.

Supply concerns along with weakness in emerging markets are current factors weighing on commodity prices. This is seen in base metals where stronger supplies amidst a progressing economy is causing bearish sentiments to prevail In, 2014, however there could be a more supportive environment for base metals.

Commodities tend to underperform in this part of business cycle when there is low GDP growth and low interest rates.This coupled with supply overhang means that commodities may continue to underperform over the next few months.


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