Graphic Content – September; Watch commodity prices

Mike Riddell
Written by

11th September 2017

Industrial metal prices have been on something of a tear since July, and unlike in the weeks and months post Trump’s election, the relative stability in speculative positions means this rally smells like a cyclical bounce in global economic activity. We thought the most likely culprit was China, given it constitutes half of global demand for copper, iron ore and zinc, and is the world’s biggest buyer of a host of other commodities.

Sure enough, we had confirmation at the beginning of September that China’s PMI Composite index had edged higher to 52.4, having dropped to a 1 year low of 51.1 in June. What’s more, the economic bounce doesn’t seem to be limited to China, where most notably ISM survey data suggested US manufacturing is growing at the fastest pace since 2011.

The chart below goes to show just how close the correlation is between industrial metal prices (purple line) and Chinese economic data (dark blue line). We have also overlaid this with global government bond yields (green line). The correlation clearly isn’t perfect, and broke down from end 2012 to mid 2014 (although could argue at the time bonds were primarily driven by unexpected US policy tightening followed by unexpected Eurozone policy easing). But given the historical tendency for commodities – and China – to lead bond yields, it is another factor to make us a bit nervous about bond valuations at the moment.

Chinese growth, commodities, and global government bond yields

Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested.

Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail.

This is a marketing communication issued by Allianz Global Investors GmbH,, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht ( This communication has not been prepared in accordance with legal requirements designed to ensure the impartiality of investment (strategy) recommendations and is not subject to any prohibition on dealing before publication of such recommendations. The information contained herein is confidential. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted.