Commodity markets are facing a number of conflicting factors at present. Global growth is certainly slowing, and industrial production growth has been decelerating for over a year now. Moreover, macroeconomic and policy risk remains elevated, undermining wider business confidence and willingness to build and hold inventory. Chinese demand improves sequentially on the back of fiscal impulse and metals-intensive policies.
The FOMC Meeting announced that the balance sheet runoff will conclude after September and the pace of Treasury runoff will be tapered in the interim, which was in line with market expectations. Spot gold moves up and down around US$1300, the dollar was poised for its strongest monthly gain in five. The $20 move lower in Gold triggered one of the largest one-day drop in STGOLD in months – the sector closed down 2.70% due to the profit taking outflow. But the fundamentals in the physical market have improved, with the global mine production increasing 1.8% y/y in 2018, the 2019 production outlook is for slower year-on-year growth as constrained Chinese production, we also note the falling head grades across the sector.
While the US and China started the new round of talks, the sentiment in China shows strong confidence on economy and the trade talks, resulting in the strong rising of Chinese equities. The mining industry equities moves along the metal prices waiting for more catalysts to support next round re-rating, the large companies are showing more aggressive on resources adding from M&A or exploration activity with the accumulated cash on hand.