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Commodities to struggle for direction amid China, virus uncertainties

Overall, the undertone for commodities remains positive but the momentum has halted for want of positive triggers.

January 30, 2021 / 05:27 PM IST

The first month of 2021 is coming to a close and the market uncertainty is high as is evident from mixed trade in equities, commodities and the US dollar.

Among major commodities, gold is set to end with a modest decline, while copper and crude are likely to end higher but off the highs. The US and Chinese equity markets will end unchanged, while the dollar index is set to make modest gains, its first in three months.

In the last few months, riskier assets benefited from strong growth in the Chinese economy, US stimulus expectations and the progress on the vaccine front. With a lack of fresh positive triggers, commodities and equities are losing momentum, while the dollar index has benefitted from safe-haven buying.

Chinese economic data shows continuing growth in the economy, however, the recent rise in virus cases and the restrictions imposed to limit the spread have fueled concerns that demand may be hit. The Chinese government is dissuading people from traveling during the Lunar New Year holidays which can have a bearing on demand.

US President Joe Biden has proposed a $1.9-trillion stimulus package to support the economy, however, there is uncertainty as to how soon and how much will be approved by the policymakers.

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Global virus cases have been rising and market players are worried about the quick spread of the new variants, while it is not clear if the existing vaccines are useful against these strains.

Also weighing on the market sentiment is the low rollout of vaccines. The European Union's efforts were hit by an announcement from AstraZeneca that it could only supply a quarter of the doses promised for the first quarter of 2021. Germany has advised against the use of the Oxford-AstraZeneca jab in those above 65 due to the lack of sufficient evidence about its efficacy.

After the Bank of Japan and European Central Bank, the US Fed kept its monetary policy unchanged and maintained a cautious outlook on the economy but did not signal any fresh measures to help the recovery.

Overall, the undertone for commodities remains positive but the momentum has halted amid a lack of positive triggers. Unless we get more clarity on the US stimulus, virus situation and efficacy of vaccines against the new strains, directionless trade may continue.

Amid this, the key events to watch for next the week will be manufacturing and services PMI data from US and Europe, Bank of England's monetary policy meeting and US non-farm payroll data.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Ravindra Rao Ravindra V Rao is the Head - Commodity Research at Kotak Securities.
first published: Jan 30, 2021 05:27 pm

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