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The MPI undergoes its sharpest drop since early June

October 12, 2017 - The Materials Price Index (MPI) fell by 2.3 percent last week, its strongest decline since early June. Only four sub-indexes, principally ferrous metals and oil, drove the fall. Ferrous metals dropped by a sharp 9.6 percent, while oil prices fell by 2.8 percent.

Ferrous metals prices reached levels beyond what market fundamentals dictated as a speculative spike in China created a bubble; that bubble is now popping as ore prices are falling sharply and scrap prices are following in suit.

Data releases reflected the tepid mood in global markets last week. In the United States, the Department of Labor reported that nonfarm payrolls declined by 33,000 in September, a stark contrast to our expectation of an addition of 80,000 jobs. While nonfarm payrolls declined, wages surged by 0.5 percent month over month, the strongest gain of the expansion.

We expect upside risk for commodities will remain limited in the near term as Chinese growth slows and oil prices continue to fall.

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