Sentiment improves amid China stimulus talks

Expectations of further stimulus measures in China helped improve sentiment across commodity markets. A weaker USD also helped support investor appetite.

Base metals extended gains on Friday to end the week higher amid optimism over China stimulus measures. China will speed up work to draft and roll out policies to boost consumption, according to the National Development and Reform Commission. The State Council is also mulling a broad package of stimulus measures for the property sector. This followed the release of weak economic data for May, including a slowdown in growth in real estate investment and industrial output. The anticipation of further economic support helped boost sentiment across the sector. Supply side issues also provided some support last week. Tin gained after Chinese producers announced maintenance outages. Expectations of disruption to Chinese aluminium output are rising amid power shortages. Iron ore and steel were stronger on hopes the measures will boost demand.

A weaker USD helped gold record its weekly gain for a while. The USD weakened against the euro after the ECB hinted at further rate hikes. This followed a Fed pause. Treasury yields fell, which ultimately boosted investor appetite for the precious metal.

The prospects of stronger demand in China helped push crude oil prices higher last week. Beijing issued larger than normal crude oil import quotas for domestic refiners. China’s apparent demand in May rose by 17.1% y/y to 14.58mb/d. There were also signals that the US driving season would bring strong demand. US gasoline demand climbed to 9.24mb/d last week, its highest level since December 2021 amid significantly lower pump prices. The upbeat demand outlook comes as OPEC implements its lower production quotas. Saudi Arabia said the OPEC+ alliance supply pack is stabilising markets, as it looks to individually cut output outside of the agreement.

European gas fell on Friday but still recorded a 10% gain last week amid further supply side issues. Norway has seen extended outages, while the Dutch government is set to permanently close the Groningen gas field in October. This coincided with scorching heat in Europe and Asia which is likely to boost demand. Gains in Europe helped push North Asian LNG prices higher. However, recent gains have seen Chinese traders step back from the spot market.

European carbon prices rallied last week amid the gains across energy markets. EUA rose to EUR94.95/t, their highest in nearly two months as traders continued to test the strength of short positions after a weekly data release showed a persistent large net short position among investment funds. Trading in Australian carbon credit units remained subdued as consumers continue to prepare for the implementation of new market regulations.