By Daniel Hynes
Early losses following weak economic data were reversed as the spectre of an end to the interest rate hike cycle increased.
Base metals edged lower following Monday’s sell-off as concerns over Chinese demand continue to emanate across the sector. China’s Q2 GDP grew 6.3% y/y, posing challenges to growth in the second half of this year. The focus is now likely to shift to the next Politburo meeting, which is likely to be held before the end of July. Policy makers have intensified their communication with the market, and expectations for a stimulus package are building. That may support already positive signs in infrastructure spending, with growth picking up in June to 6.4% y/y.
Iron ore futures managed to edge higher, led by gains in the steel market. The resilience of the fixed asset investment has boosted sentiment, aided by the spectre of further stimulus measures. In another positive sign, iron ore inventories at Chinese ports were drawn down further last week and are at their lowest level since late 2020. Meanwhile, iron ore exports from Brazil reached 1.46mt/d in the first 10 days of July. This was down from 1.48mt/d a year ago.
Gold rose late in the session following dovish commentary from central bankers. ECB Governing Council member Klaas Knot said monetary tightening beyond next week’s meeting is anything but guaranteed. This saw bond yields fall, including in US Treasuries following the comments. Investor demand was also supported by weak US economic data, with retail sales rising less than expected. This is a welcome sign for the Fed as it seeks to cool inflation.
Crude oil gained amid signs of further tightening across the market. Russia appears to be making good on its promise to reduce supply. Crude loadings are down sharply at three Russian western ports averaged 1.78mb/d in the four weeks to 16 July, according to ship tracking data. Russia’s Energy Ministry said it will reduce its Q3 export plans by 2.1mt, or 500kb/d in August. The government last left it to its nation’s producers whether to make additional cuts during the month. This may be aided by Russian oil losing its appeal to price sensitive buyers. Its crude is becoming more expensive, resulting in India now considering boosting purchases from traditional sources in the Middle East.
European gas prices rebounded as LNG imports fell amid stronger demand from Asia. Flows are 15% below expectations into Northwest Europe as extreme heat in Asia boosts demand for cooling. This has been aided by US LNG exports becoming more profitable in Asia. Demand in Southern Europe has also been supported by higher temperatures. The heatwave is also disrupting energy and transport systems. The outlook for stronger demand boosted sentiment in the North Asian LNG market. Weekly global LNG imports rose 7% over 10-16 July to 7.8mt. Deliveries to Japan recovered by 0.5mt from the previous week’s low.
Data source: Commodities Wrap