The OECD composite leading indicators continue to point to slowdown in economic activity with the latest data for June 2011 reaffirming slowdown in most of the developed countries and major OECD non-member economies.

The OECD leading indicators are designed to anticipate turning points in economic activity relative to trend.

Coming on top of last week’s US debt downgrade and continuing European sovereign debt concerns, the latest data from OECD may worsen the already fragile sentiment.

Among the emerging economies, data from Brazil, China and India continue pointing to slowdown in economic activity. The silver lining is that as compared to assessment based on May 2011 data, stronger signs of turning points in growth cycles have emerged in the US, Japan and Russia.

The positive relationship between economic activity (especially industrial activity) and consumption of commodities such as energy products and industrial metals is of course well known. The slowdown in the developed world in general and Europe in particular has surely affected the demand for base metals which is reflected in weakening prices.

A slowdown in China’s industrial activity as evidenced by the latest OECD data would mean a further near-term downside risk to metals prices as the Asian major is the mover and shaker of the global metals market.

At the same time, as large consumers of base and industrial metals, falling prices are likely to encourage buying by China. Inventory levels are running low and restocking demand is expected to emerge soon. So, in some cases such as copper which face supply-related constraints too, the current price collapse may be short-lived.

Interestingly, the negative news flow actually overshadowed positive news that is the US headline non-farm payrolls came much better than expected for the month of July with payrolls registering gains of 117,000 in July, better than the market expectations of 85,000.

This piece of information should help allay fears that the US economic recovery was stalling. Now, the OECD leading indicators have further reaffirmed the strong signs of turning point in the US growth cycle.

However, it is going to take sustained flow of positive macroeconomic data for the financial markets to regain confidence and for investors to return to their favourite markets.

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