Hopes of more stimulus measures in China boosts sentiment
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Oil markets rebounded as they weighed up risks to supply. Hopes of further stimulus measures boosted sentiment in metals.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Ahead Today
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Market Commentary
Crude oil reversed recent losses as the focus returned to tensions in the Middle East. The market was reminded of the precarious situation when Israel’s Chief of General Staff, Herzi Halvei, said that if Iran attacks again, Israel will hit back “very hard”. Negotiations over a ceasefire agreement in the Middle East continue. Israel is said to be considering a US-led end to the conflict in Lebanon. The plan, if agreed, would lead to a 60-day suspension of hostilities while mediators craft a lasting peace deal to remove Hezbollah from the border region and bolster US peacekeepers there. Sentiment in the crude oil market was also supported by an expected drawdown in US inventories. Commercial crude stockpiles fell by 515kbbl last week, according to EIA data. Gasoline and distillate stockpiles also fell by 2,707kbbl and 977kbbl respectively.
European benchmark gas futures fell sharply as the market contemplated supply risks. Easing tensions in the Middle East have lowered the risk of supply disruptions in the Strait of Hormuz. There are also some concerns that Russian pipeline gas may still find a way to Europe, despite Ukraine saying it won’t renew a deal that saw volumes transit its country. With the US election looming, the market is also concerned that Russia LNG from its currently sanctioned Arctic LNG 2 facility may find its way onto the market. Unusually mild weather also raised concerns of weaker demand. The moves in Europe weakened sentiment in the North Asian LNG market, with spot prices edging lower. This is despite buyers in South Asia remaining active in trying to secure cargo for the coming winter.
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Copper gained in early Asian trading following a report of a possible new announcement of Chinese stimulus measures. Reuters reported that a fiscal stimulus package totalling CNY10trn may be approved at a meeting by China’s top legislative body to be held on 4?8 November. This comes as signs of copper demand remain weak. Spot copper continues to trade at a discount to the futures benchmark, a signal of ample supplies. The base metals market sold off late in the session after strong US data raised the prospect of a less aggressive rate cut cycle. The US economy expanded at a robust pace in the third quarter as household purchases accelerated ahead of the election and the federal government ramped up defence spending. Sentiment wasn’t helped by signs of stronger supply. Codelco, the world’s largest copper producer, snapped a slump in its copper production, producing 338kt in the third quarter. That represents a 2% increase from the same period last year.
The strong US economic data failed to derail gold’s ongoing rise to record highs. The precious metal continues to find support from investors amid heightened macro risks. The market appears to be positioning for a high level of uncertainty ahead of the US election. Overall, gold demand remains strong. According to the World Gold Council, it rose by 5% in the third quarter, setting a record for the period. The increase was underpinned by stronger investment flows from the West.?
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Chart of the Day
Investors continue to add to their already large net-long positions in the gold market.