'Metals eye trade-talk progress; oil may rebound amid Venezuelan crisis'

Ravindra V Rao

Commodities have had a mixed week as market players continued to focus on the partial US government shutdown, the US-China trade war, political risk in the UK and the IMF report regarding fears of a slowing global economy along with rising downside risk. China’s gross domestic production has fallen to an almost three-decade low because of the trade war.

In fact, China reported mixed data. Retail sales and industrial production rose more than forecast; fixed-asset investments and GDP fell more than expected. But industrial metals did not move much in the week gone by.

January 21 was a holiday in the US. Hence, in the holiday-shortened week, US stock futures rose, with optimism creeping back in as investors awaited progress in trade talks to be held next week. However, US Commerce Secretary Wilbur Ross’s comments did not augur well for sentiment, though it is nothing new hearing that there remain issues to be resolved and a trade deal is not within imminent reach.

Ravindra Rao

Head - Commodity Research & Advisory|Anand Rathi Commodities

• Expect cotton prices to recover gradually from eight-month low: Anand Rathi

• Crude oil to be positive in the near term: Anand Rathi

• Prospects of a good crop to put pressure on prices of mustard seed

We expect non-agro commodities to be volatile next week, too. China will announce its monthly manufacturing PMI, expected to have contracted further according to a Bloomberg forecast. Metals, thus may be weak.

Meanwhile, a Chinese delegation, including deputy ministers, will arrive in Washington on January 28 to prepare for high-level trade talks led by Vice-Premier Liu He. Vice-Commerce Minister Wang Shouwen and Vice-Finance Minister Liao Min will also arrive in the US. China’s central bank governor Yi Gang will too join the talks.

Hence, amid such a high-level meeting of two of the largest economies of the world, base metals are likely to be volatile. Investors are yet to react to weak Chinese GDP figures as they are being careful ahead of next week’s meet.

Crude oil has held above $52 even after the API and the government agency, EIA, reported a huge pile-up of inventories in the US. Political turmoil in Venezuela has recently supported the rally in oil.

As president Nicolas Maduro was re-elected for another term, the US backed an opposition leader to be interim President. The US has also threatened to impose sanctions on Venezuela crude oil. Russia has warned the US not to intervene or face the consequences. In an act of loyalty, Venezuela’s military has backed the President. Amid all this drama, crude oil has not reacted in a large way. However, US-Venezuela relations could lead to a spike in crude oil in the short term.

Lastly, gold is likely to stay positive after the IMF lowered its global growth forecast. According to Bloomberg expectations, the US may post weak nonfarm payrolls for January; hence, we expect the yellow metal to be positive. Moreover, amid the US-China trade meet and the political risk in the UK, safe-haven demand may be upbeat. Hence, overall, the outlook for the yellow metal is bullish.

The author is Head - Commodity Research & Advisory, Anand Rathi Commodities.