TORONTO, Sept. 4, 2018 /CNW/ - Scotiabank's Commodity Price Index fell by 0.7% m/m in July mainly on weakness in the metals sub-index stemming from trade-related macro skittishness.

Further tariffs and the subsequent hit to Chinese manufacturing activity (chart 1), uncertainty regarding Beijing's policy balance between deleveraging and stimulus, emerging market financial stress, as well as a material boost to the US dollar have all conspired to put a brake on the gains made by commodities over the past two and a half years. Base metal prices—down by more than a fifth since mid-June—continue to absorb the brunt of the headwinds, but oil's march forward also appears to be slowing on demand concerns and gold is trading below $1200/oz for the first time since late-2017 on a stronger greenback. While there are nascent signs that materials-intensive activity is slowing, the global economy remains strong and economic growth broad based.

"We expect that fears will subside through summer's end as progress is made on the trade file and that additional Chinese stimulus will help lift prices back to where most were back in early June," wrote Rory Johnston, Scotiabank Commodity Economist, in the Report. 

Other highlights of the August 31 Report include:

• Much of recent commodity price weakness is due to speculative that trade war stresses will derail global economic momentum, meaning that future retracements are likely to be abrupt as positions are covered.
• Zinc prices continue to fall back from multi-year highs reached in the first quarter.
• Federal Court of Appeals quashes Trans Mountain Pipeline Expansion approvals, darkening the outlook for Western Canadian market access.

Scotiabank Economics provides in-depth commentary on economic, financial market, and policy developments, both domestically and internationally.

Read the full August 2018 Scotiabank Commodity Price Index online here.

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SOURCE Scotiabank