Central banks dovish policy supportive for commodities

Sakina Mandsaurwala

Precious metal complex ended unchanged over the last week on reversing yields of 3M and 10Y US treasury and with stronger dollar capping the upside in precious metals prices. Base metal prices too ended with mixed gains on uncertainty over the outcome of US-China trade talks. Energy complex closed with 3% gains helped by OPEC cuts, declining oil rigs and sanctions on Venezuela and Iran are creating a shortage in crude oil market.

Major central banks of the world have turned dovish owing to global growth worries. US Fed in its March FOMC meeting confirmed its stance to remain on hold for the rest of the year 2019 and downgraded its growth forecast from 2.9% in 2018 to 2.3% in 2019 and 2.0% in 2020. Following the Fed, ECB too delayed its tightening to 2020.

ECB President said it would start with targeted LTRO-III in September 2019 as it sees its GDP growth at 1.1%, down from 1.7% in December last year. Japan also kept its policy steady and maintained its interest rates at minus 0.1%. Lastly, China also supports the economy by reducing its RRR rates five times in 2018 and continues to do so in 2019 as the fresh data points to the softening in demand.

With upcoming important events like resolution of a trade meeting between US and China, supportive monetary easing measures from China and other major central banks of US, ECB, China, Japan providing a dovish signal, we might see an uptick in the economic growth creating uptick for commodity prices.

We expect Copper prices to get a boost and trade higher towards USD 6800 per tonne by the next quarter of 2019. Currently, LME Copper prices are trading at USD 6430 per tonne.

The author is Commodity Analyst at Narnolia Financial Advisors.