Commodity markets rallied across the board on reignited US political turmoil - ANZ

The research team at ANZ explains that commodity markets rallied across the board as the political turmoil in the US reignited, sparking a weaker USD, which helped increase investor appetite in commodities.

Key Quotes

“Crude oil prices continued to trend higher as the market becomes increasingly confident that OPEC members will commit to a rollover in the production cut agreement. Azerbaijan joined the chorus of calls for an extension; however it favours continuing to the end of 2017 (rather than Q1 2018). Prices were also supported by the broad weakness in the USD. Sentiment was also buoyed by signs of strong demand. The American Petroleum Institute said that US gasoline consumption climbed 0.6% y/y to9.27mb/d in April, as the key US driving season starts. Total fuel deliveries were even stronger, up 1.7% to the highest level at this time of year since 2008. However, all eyes will be on OPEC this week. Members meet on Thursday night (Australian time) for their formal ministerial meeting, followed by talks with non-OPEC participants regarding the production cut agreement.”

“Base metals surged across the board as a combination of better than expected economic data, falling inventories and a weaker USD helped improve sentiment in the market. Copper rose nearly 2% after LME data showed cancelled warrants (orders to remove metal from warehouses) climbed 1.4% last week. The increase in cancelled warrants was even higher in zinc, up 18% last week. As a consequence, on-warrant stockpiles fell to their lowest level since 2008.”

“Iron ore prices climbed higher as sentiment in the Chinese steel market improved. Steel futures in China climbed after the release of company results showed strong sales by real estate developers in Q1. Sentiment was also buoyed after the NDRC said it had closed 31.7 million tonnes of capacity in China.”

“Coking coal fell below USD155/t despite a trading activity finally showing signs of improvement. Heavy rain that had temporarily closed certain rail lines in Queensland eased on Friday. This saw Aurizon, the rail freight operator, reopen the Goonyella coal rail system on Friday morning and state that there were no plans for anymore temporary closures for the rest of the day.”

“Gold continues to be supported by US political turmoil, with prices threatening to break through USD1260/oz. Reports that former FBI Director, James Comey, will be testifying before the Senate committee came amid further headlines around Trump’s conversations with Russian officials. However, comments from Fed member James Bollard that its projected path for raising rates may be too steep also helped weaken the USD and increase investor demand for gold.”