FICC | Commodities
Global macro commodity and energy coverage, combining top-down and bottom-up fundamental research. Typically published twice a month.
China's 4.7 trillion RMB (~ $720 billion) fiscal stimulus program will be more bullish for base metals, particularly copper, than we initially surmised.
While the Fed's recent forward guidance leading markets to increase the odds of a policy-rate hike earlier than previously expected will restrain the recovery in crude oil prices, fundamentals will dominate price formation now that markets have rebalanced.
Against a backdrop of continuing supply destruction, particularly in the U.S., and a pick-up in crude demand, markets will remain in balance this quarter and go into a deficit in 2016H2.
Gold will remain well bid over the short term. The surge in demand that pushed prices up by 20% ytd (Chart of the Week) will continue to dominate supply growth.
The pace of U.S. oil supply destruction accelerated at the end of April, as yoy losses increased to 470 thousand barrels per day (Mb/d) for the week ended April 29.
China's reflation policies have succeeded in reviving iron ore and steel prices, which are up 45.6% and 52.6% from their January lows, along with the profitability of domestic steelmakers.
Saudi oil policy, like its defense policy, will be more aggressive and less predictable, following Deputy Crown Prince Mohammed bin Salman's apparent nullification of a production "freeze" deal at Doha.
A weaker USD resulting from more dovish forward guidance from the Fed, and evidence of continued production declines in non-OPEC and OPEC countries will continue to buoy oil prices.
These general themes - along with our assessment that markets were overestimating downside price risk and underestimating upside risks arising from supply destruction and geopolitical instability - supported the best-performing strategic recommendations we made last quarter.