— Brent crude oil is down 1.8% to $75.71 a barrel.
— European benchmark gas is up 1.5% at EUR25.36 a megawatt-hour.
— Gold futures are 0.6% higher at $1,955.20 a troy ounce.
— LME three-month copper futures are down 0.2% at $8,124.50 a metric ton.
— Wheat futures are down 1.6% at $6.06 a bushel.
China’s Fading Recovery Reveals Deeper Economic Struggles
China’s era of rapid growth is over. Its recovery from zero-Covid is stalling. And now the country is facing deep, structural problems in its economy.
The outlook was better just a few months ago, after Beijing lifted its draconian zero-Covid controls, setting off a flurry of spending as people ate out and splurged on travel.
But as the sugar high of the reopening wears off, underlying problems in China’s economy that have been building for years are reasserting themselves.
The property boom and government overinvestment that fueled growth for more than a decade have ended. Enormous debts are crippling households and local governments. Some families, worried about the future, are hoarding cash.
Central Banks Look to Increase Gold Reserves as Geopolitical Worries Mount
Nearly a quarter of central banks are looking to increase gold reserves this year, spurred on by geopolitical worries, interest rate concerns and rising inflation pressures.
Up to 24% of central banks were looking to raise gold holdings in 2023, according to a new survey from the World Gold Council.
In particular, emerging market central banks were more keen to increase reserves of the precious metal, the industry body said, while 71% of the survey’s respondents expected overall central bank gold holdings to rise this year, compared with 61% last year.
Gold, which has long been used as a store of value and hedge against economic strife, is still seen as attractive by central banks, according to Shaokai Fan, head of central banks at the WGC. “There’s been a major shift in how central banks perceive the dollar and the role of gold,” said Fan. “Central banks move at a slow pace and last year’s events were a shock to everybody,” he said, adding that current moves support last year’s gold buying spree.
Copper Prices’ Upside Risks Growing on Rising Property, Grid Demand
0905 GMT – Copper prices have fallen sharply through May amid wavering demand from China, however a price bounce could be on the horizon, according to Morgan Stanley. Copper prices have slipped 11% in the last four weeks and 15% from its year-to-date high, analysts at the U.S. bank say in a note. However, there are some “green shoots,” they say. Chinese property completions are up 18% YTD and 5% higher than 2019 levels, while grid spend is up 10% YTD and electric-vehicle sales are up 44%. “On top, although refined copper imports are down 11% YTD, copper ore and concentrate imports are up 6%, refined production is up 14%, and semis output is up 12%. If we add production to net imports, we imply China’s ‘apparent consumption’ ex inventories to be up 9%,” MS says. (email@example.com)
Oil Slips on Doubts Over US Debt Deal
0740 GMT – Oil prices dipped on concerns that President Biden’s debt-ceiling deal could struggle to win congressional support. Brent crude oil falls 1% to $76.37 a barrel while WTI declines 0.7% to $72.13 a barrel. While the deal, signed over the weekend, should have allowed investors to breathe a sigh of relief, some Republicans have said they will oppose it. Congress has until Monday to approve the deal or the U.S. could default on its debt. The focus is also on an OPEC meeting on Sunday. OPEC “will want more evidence of the impact of its lower output quotas before making further changes” despite recent hints from Saudi Arabia indicating they are considering another output cut, ANZ says in a note. (firstname.lastname@example.org)
Metals Slip Amid Mixed Macro Signals
0716 GMT – Metal prices are falling with the macroeconomic environment sending mixed signals at the start of the week. Three-month copper is down 0.7% to $8,081.50 a metric ton while aluminum is 1.2% lower at $2,215.50 a ton. Gold meanwhile is down 0.5% to $1,935.60 a troy ounce. “U.S. bond markets are pricing another 25 basis point hike by the end of July, a hawkish shift that’s good for the U.S. dollar but bad for risk assets and commodity prices,” says Peak Trading Research in a note. Peak says that markets will be watching how debt ceiling talks progress as well as U.S. job numbers this week, and their effect on the U.S. dollar. (email@example.com)
China’s Slow Drawdown of Steel Stocks Indicates Weak Demand Pickup
0716 GMT – China’s average steel inventory drawdown 12 weeks after the 2023 CNY was in line around 25%, although the rate of drawdown has slowed over the past month, Citigroup analyst Ephrem Ravi says, adding that inventories usually go sideways from June to early October before drawing down again. While the drawdown of stocks ticked up marginally three weeks ago, which is unusual for any week in May, the rate of drawdown has been slower since then, indicating weak demand pickup, the analyst says. Looking forward, an average 30% draw over 16 weeks post CNY peak (13%-48%) would mean the drawdown is on track. (firstname.lastname@example.org)
India’s Steel Sector Booming on Infrastructure Spending
0046 GMT – India is expected to experience the biggest rise in steel demand of any major producing nation this year, Commonwealth Bank of Australia analyst Vivek Dhar says in a note. “With a 33% [year-on-year] boost in government capital spending in 2023–24 (year ending 31 March 2024) to fast track infrastructure development, we think India’s steel output growth will lead the world again in 2023,” says Dhar. India was already the only major steel producer to notch a year-over-year increase in output in 2022, he says. The World Steel Association forecasts Indian steel demand will rise by 7.3% this year after increasing by 8.2% in 2022. (email@example.com; @RhiannonHoyle)
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