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Commodities and metals gain on China stimulus

Chinese markets opened the week higher as PBoC announced the extension of its pilot program on bank lending (launched last year), which should allow banks to pledge assets (incl. loans) to secure PBoC lending. This is expected to provide additional liquidity in the market by facilitating bank lending. The program will first be launched in Shandong and Guangdong provinces and should be expanded to Shanghai, Tianjin, Liaoning, Jiangsu, Hubei, Sichuan, Shaanxi, Beijing, and Chongqing. Shanghai’s Composite rallied 3.28% and Hang Seng gained 1.21%.

The lack of liquidity in China is an important drag to the recovery on both macro and micro levels of this colossal economy. The inflation less-than 2% signals that the gigantic domestic potential in China is far from being capitalised efficiently. There is certainly much more to do in order to boost the potential hidden behind 1.5 billion people and their massive $10 trillion economy.

The commodity markets made a positive start to the week; metals gained on expectation that additional Chinese liquidity will certainly give a bump to demand.

Copper advanced to $2.43/lb as, in addition to Chinese liquidity stimulus, Glencore announced to sell its copper mines in Australia and Chile.

Aluminium and nickel surged 3.42% and 1.58%. The significant price moves could however be illusive. The one-month realised volatility in the aluminium futures spiked to a seven year high.

Hence, the stabilisation in the commodity market is contingent on Chinese economic health.

Quick glance at gold

Gold surged to $1166.80 as news that South Africa’s No 2 gold miners’ union could go on a strike supported the already building appetite in gold. Positive momentum is favourable for further advance to $1170/77 (Aug high / 200-day MA). Weekly support remains at 1135/40, below there is possibility to retrace down to $1122/1112 (Fib 50% / 61.8%).