Commodities brace for Trump’s trade push and China’s economic data next week

Commodities Outlook

The US-China trade truce marked a larger-than-expected de-escalation, significantly improving the global growth outlook and providing much-needed relief to financial markets. Over the weekend, both countries agreed to lower tariffs, fueling optimism that this may signal the beginning of the end of their prolonged trade war.

Under the agreement, the US will reduce its combined 145 percent tariffs on most Chinese imports to 30 percent, including items related to fentanyl, for a 90-day period starting May 14. In return, China will lower its 125 percent tariffs on US goods to 10 percent. This news pushed the US dollar to a one-month high of 101.97, while equities rallied on relief from the temporary pause in the tariff battle.

However, the dollar later retreated sharply as weaker US economic data increased expectations of rate cuts. April’s CPI softened, the PPI posted its steepest decline in five years, and retail sales showed little growth. Additionally, consumer sentiment in May dropped to the second-lowest level on record, with one-year inflation expectations jumping to 7.3 percent.

COMEX Gold recorded a sharp 4.7 percent weekly loss, its worst performance of the year, amid easing geopolitical risks and improving trade sentiment. The US-China tariff progress, Trump’s decision to lift sanctions on Syria during his Middle East tour, and potential trade deals with Japan and South Korea all weighed on safe-haven demand. Moreover, the US announced plans to lower the “de minimis” tariff threshold for low-value Chinese shipments to as low as 30 percent, encouraging a shift toward risk assets. Despite this, gold managed to hold above $3200 per troy ounce by week’s end, supported by Moody’s downgrade of US sovereign debt late Friday.

Silver's weekly decline was limited to just 1 percent, and most base metals closed higher, supported by improved industrial demand expectations following the tariff reprieve. Aluminium surged above $2500 per tonne, its highest level since March while the LME cash-to-3M spread flipped into backwardation, reflecting spot supply tightness. Copper was the sole loser among the major metals amid ongoing macroeconomic uncertainty.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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WTI crude experienced sharp swings this week (ending May 16). Optimism over the US-China trade breakthrough pushed prices to a two-week high of $63.9 per barrel. However, prices later dropped to $60.5 per barrel after President Trump claimed that the US was nearing a nuclear deal with Iran, raising concerns of a future supply glut. Oil prices rebounded to close above $62 per barrel, supported by low refined product inventories and the tariff truce. Further upside could follow next week, as Iran denied receiving any written proposal from the US, highlighting unresolved issues.

On the daily chart, MCX Crude Oil Futures developed a Hammer candlestick pattern (bullish) on Thursday after holding support near the 20-EMA. Price rose on Friday, breaking Thursday’s high and closing positive for the day. The initial resistance level is Rs 5,450 per barrel, which if broken may allow the price to climb further to Rs 5,570. On the other side, initial support is at Rs 5,180, followed by Rs 5,100.

Next week, markets will closely monitor key Chinese economic data and flash PMI releases. Speeches from several US Federal Reserve and UK MPC officials will also be watched for policy signals.

With the initial euphoria over the US-China trade truce starting to fade, markets are now turning their attention to Washington for broader trade agreements, especially after President Trump announced on Friday that the US will set new tariff rates for its trading partners in the coming weeks.

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