Analysts from TD Securities are scrutinizing China’s upcoming third plenum in July amid growing economic uncertainties. Despite recent stimulus efforts, markets remain unsettled as indicators from the property sector show weakness, alongside lackluster industrial demand data.
The latest round of stimulus appears ineffective in bolstering markets, particularly with ongoing challenges in the property market and soft industrial demand figures. Household debt levels are high, dampening incentives for further borrowing, especially as housing prices continue a downward trajectory. This undermines the conventional belief that property prices only rise over time, posing a significant economic challenge.
Market optimism now hinges on potential new domestic consumption stimulus measures from China. However, despite hopes for economic revitalization, prices of industrial metals continue to decline. TD Securities’ analysis indicates a decline in their gauge of commodity demand amid a fragile global macroeconomic environment. They observe that the early summer optimism has faded, with a noticeable impact on industrial metals.
Their return decomposition framework highlights Copper’s vulnerability to downside risks, influenced by specific factors like market positioning. This suggests that Copper may face additional declines in the short term as overextended positions are unwound. While Copper currently maintains some safety margin before potential further sell-offs, other metals like aluminum, zinc, lead, and nickel are already nearing thresholds that could trigger selling from Commodity Trading Advisors (CTAs).
The outlook underscores a cautious stance on China’s economic trajectory and its implications for global commodity markets, particularly in the industrial metal sector.
