Commodities: To continue to recover although geopolitics acts as source of volatility

Commodities are in a third year of a recovery, after a five year slump. Being largely a cyclical asset class, commodities have traced the economic recovery that has gathered momentum in recent years. Global manufacturing purchasing managers indices hit a seven year high earlier this year, indicating that manufacturing order books are strong and inventories are lean, boding well for commodity-intensive demand from the industrial sector. In recent weeks the threat of a trade war and has dented otherwise strong performance and we believe that as long as the threat subsides, fundamentals will supersede and allow commodities to continue to recover. For certain commodities like aluminium and oil, the threat of supply disruptions from sanctions could lead to higher prices as long as demand is not hampered by the economic uncertainty that trade wars and sanctions breed.