Volatility was seen in the lead prices during in the past one and half month as uncertainty over trade spat between US and China weighed on the market sentiments. Prices on the LME rose marginally by 1.2 percent whereas on the MCX prices rose by 1.3 percent.
LME Lead lost 22.3 percent of its value in 2018. It is majorly used in the production of batteries but slowdown in the economy of the world's biggest metal consumer (China) restricted the gains. China Manufacturing sector PMI, after stalling in the month of November 2018 declined for the first time in over 19 months in December 2018. It signalled further weakening in demand in China. Weak manufacturing numbers from China, Europe and US weighed on the metal prices.
In order to improve their stagnant economy, China planned to inject liquidity into the financial system on January 16, 2019. China's central bank said it will make big cash injection through open market operations.
The People's Bank of China (PBOC) is injecting 250 billion yuan ($37 billion) through seven-day reverse bond repurchase agreements and 150 billion yuan through 28-day reverse repos.
However, China’s economy grew at the least pace in 28 years, 6.4 percent in the fourth quarter of 2018 signalling signs of a slowdown in the world’s biggest metal consumer.
Is the trade war off the table yet?
The trade spat between the US and China, the biggest economies in the world raised concerns over the global growth prospects. The 90-day truce between the US and China eased off the trade tension for a while. However, Trump has threatened to impose further tariffs if the two sides are not able to strike a deal.
Officials of the US and China met again in early 2019 to discuss their current tariff situation in Beijing as the trade spat had a severe impact on the global growth prospects.
Markets had an optimistic outlook of the trade talks after positive statements from Trump and Chinese officials. However, uncertainty over the outcome of the trade talks continues to weigh on the market sentiments as both sides keep mum.
Downfall in Inventories supported the prices
Sharp decline was seen in the inventory levels on the LME in the beginning of 2019. Falling inventory levels provided certain support to the lead prices amid a slowdown in the economic growth in the world’s biggest metal consumer.
The global lead market extended its deficit of 34,900 tonnes in November 2018, which increased from a revised deficit of 24,000 tonnes in October 2018 as per the data published from the International Lead and Zinc Study Group (ILZSG).
Outlook
Constant rate hikes by the Federal Reserve led to an uptrend in the Dollar Index that pressurized the base metals. After four rate hikes in 2018, the FOMC announced to slowdown the rate hikes pace in 2019 taking into consideration the slowdown in the global economic growth. Rate hike pause pressurized the US dollar and supported the metal prices.
Investors will be watching the first FOMC meeting in 2019 which is going to be held in January 2019 for further rate hikes schedule by the Fed.
The outcome of the trade war is still uncertain that might continue to play with the market sentiments. However, China moves to inject liquidity in their system might provide some relief but that won't have any immediate effect.
China will also try to come out with electric cars that might reduce their severe pollution problems. Lead acid batteries are to be used in electric cars which might boost the demand.
We expect lead prices to move higher towards Rs 152 in a month time frame and hence we advise investors to be on the buy side in this metal.
We provide you sure shot Commodity & Equity Market Tips, Intraday tips, share market tips, Mcx bullion tips, Mcx tips, Crude tips, Stock tips, Future and Cash tips with Technical & Fundamental Research.
Visit: www.ripplesadvisory.com
Contact us @ +91-9644405056
No comments:
Post a Comment