Business Cycle

The Business cycle section analyses the macro trends in the global, American and Chinese economies. Furthermore, it also compares the global PMI to the commodity price, providing an insight into its impact on the commodity price.

The price and PMIs used in the business cycle analysis is collected from several different stock exchanges, research institutes and industry organizations: Markit, ISM and CFLP.

An uptrend in the global economy is expected to drive up prices, thus resulting in an uptrend in the commodity price, and vice versa.

The arrow on the top of the page indicates the current price pressure from the business cycle analysis, and is represented at the top of the coloured triangle in the overview section.

Effect on commodity price development

Kairos Commodities provides a business cycle analysis in order to determine what effect macroeconomic data has on commodity prices. In this study, emphasis is placed on using the PMI as a general indicator. GDP may be used as an alternative indicator, however, GDP data is often published with a significant delay, and is subject to several revisions after the initial publication. In contrast, data for the PMI is based on surveys where the duration from initial surveying to final publication is short.

The PMI does not provide a value in currency, but instead a composite index that can best be compared to a growth rate. This means that a decline in the PMI from 53 to 52 corresponds to slower growth. Thus, the PMI would still signal an expansion, since the reading is above 50, but the expansion would occur at a slower rate.

Comparing a growth rate with a commodity price can have drawbacks. Generally, the direction of trends between the PMI and commodity prices show a relationship, but the amplitude of the PMI and the commodity price do not match. A small move in one can be significant in the other. Nevertheless, an increase in the PMI is often found to be mirrored to some extent by an increase in commodity prices.


The PMI is especially useful for the shorter waves, other indicators and analyses will explain larger waves better. In this context, shorter waves refer to periods of less than 2 years. The period from 2006-2008 is one where several commodities' trends deviated from the PMI's trend. Accordingly, for these commodities, this period is marked with a grey box, i.e. an exception. There, the PMI was not a good indicator, but nonetheless, this period was accurately forecasted by Kairos Commodities through the use of alternative indicators and analyses.

Additionally, a specific commodity may sometimes be subject to significant fundamental market changes, weakening the impact of macroeconomic developments on its price. For instance, this could be a period of drought that results in increasing prices for a commodity during a period of worsening macroeconomic conditions.

In general, a grey box is positioned in the periods of deviations. However, it is possible to find short periods where the price and the PMI move in opposite directions, where a grey box has not been placed. In most cases this is because the divergence was so brief that it does not provide useful information. In other cases, a grey box has been placed in periods of deviation that are actually caused due to a time lag, where the peak in the PMI is followed by a peak in the commodity price 1-2 months later. An example of such a relationship is steel, which is beneficial to know when forecasting its price.

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