Demand expectations within the commodity complex are on the decline, according to TDS Senior Commodity Strategist Daniel Ghali. Despite this, Beijing is expected to take a more forceful approach in boosting domestic demand, focusing on the consumer and housing sectors. This was revealed during a press conference following the Third Plenum. The upcoming July State Politburo meeting, which will be chaired by President Xi, may provide the first hints of stimulus measures to come. However, for now, demand signals are likely to continue dragging down the base metals complex, especially since supply risk premiums are unlikely to provide any offset.
One key area where Commodity Trading Advisors (CTAs) are expected to show selling activity is in Aluminium. Algorithms may sell up to -30% of their maximum size if the downtrend persists in the coming week. As demand expectations continue to decline and Beijing gears up to stimulate domestic demand, it is anticipated that the base metals complex will face further downward pressure. This may be exacerbated by the lack of any offsetting risk premiums from the supply side. Investors and traders will be closely watching the upcoming state meetings and announcements for any signals of potential stimulus measures, as these could significantly impact commodity prices in the near future.
It is crucial for market participants to keep a close eye on developments in the commodity market in the coming weeks, particularly with regards to Beijing’s plans for stimulating domestic demand. Any announcements or policy changes could have a significant impact on prices within the base metals complex. In the meantime, CTAs are expected to increase their selling activity, with Aluminium being a particularly vulnerable commodity. Algorithms may sell a substantial portion of their holdings if the current downtrend persists, further impacting prices in the complex.
As the commodity market faces declining demand expectations, it will be interesting to see how Beijing’s planned stimulus measures impact prices in the base metals complex. While the focus is on driving domestic demand, particularly in the consumer and housing sectors, there may be challenges ahead as supply risk premiums are unlikely to provide a sufficient offset. With CTAs expected to increase selling activity, particularly in Aluminium, investors and traders should be prepared for continued downward pressure in the market in the coming weeks. Monitoring upcoming state meetings and announcements will be crucial for understanding how these developments will shape the future of the commodity market.
