China stimulus may not be all that the market hopes

Most commodity prices rose this week on hopes of Chinese fiscal stimulus and a “soft landing” in developed markets. That said, a stronger US dollar later in the week meant that the prices of precious metals fell. We are concerned that there could be too much optimism about the possible scale of  Chinese stimulus. or by how much stimulus could prop up growth. Accordingly, we think industrial metals prices will struggle to make significant gains in the remainder of this year.

Early next week, the official and Caixin PMIs will provide a steer on economic activity in China this month. The timely data we have point to a further deceleration, which should take some of the recent heat out of commodities prices, but probably won’t, given that it will fuel hopes of more policy stimulus. Elsewhere, OPEC+’s JMMC monitoring committee meets on 4^th August. It is quite possible that Saudi Arabia will extend its voluntary 1m bpd cut into September, despite Brent prices comfortably over $80 per barrel and resilient demand