We expect another RRR cut in China by as early as next month. This increase in expectation of economic stimulus may bring support to the commodity prices
Precious metal complex rallied last week with gold prices gaining over 0.5 percent and base metal prices ended with mixed sentiments on uncertainty over the outcome of US-China trade talks.
Copper prices rallied on supply-side worries while other metals ended the week with small losses. Lead was the most hit metal last week closing with 2.5 percent loss. Energy complex closed with 2.5 percent gains helped by supply tightness and emerging worries in Libya and further loss in Venezuela output.
The broad-based improvement in the Chinese economy from manufacturing to producer price inflation in March has boosted the market sentiment suggesting that the economy is slowly moving towards stabilisation. This is also well supported by the ongoing progress in US-China trade talks.
The pick-up in China’s manufacturing PMI since the last three months have provided some relief to the investors with the March PMI figure at 50.5. The Service activity in China also quickened in March at 54.8 confirming the stability in the Chinese economy.
The service sector contributes almost half to the Chinese economy. Last week’s encouraging New Yuan loans and money supply surprised the market positively posting increment of 1.69 trillion Yuan in March. Total Chinese Yuan loan in the first quarter of 2019 hit a record of 5.81 trillion Yuan. Also, total social financing, a broad measure of credit in the economy, increased by four times in March at 2.86 trillion Yuan since last month. This support implies a continuation of the recovery in the economy.
With some improvement in the Chinese economy along with the government efforts to support growth through easing policy, we expect another RRR cut in China by as early as next month. This increase in expectation of economic stimulus may bring support to the commodity prices.
We expect Nickel prices to get a boost and trade higher towards $15,500 per tonne by the next quarter of 2019. Currently, LME Nickel prices are trading at $13,020 per tonne.
The author is Commodity Analyst at Narnolia Financial Advisors Ltd.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.