Key Macroeconomic Indicators for Base Metal Prices (2016-8-22)

SHANGHAI, Aug. 22 (SMM) –Annual meeting of central bankers in Jackson Hole and crude oil prices will come under the spotlight this week. Preliminary manufacturing PMIs and revised Q2 GDP in developed countries will have less impact. 

The annual meeting of central bankers will be held in Jackson Hole during August 25-27. Considering US presidential election and recent poor economic data, speech by US Fed Chairwoman at the meeting in Jackson Hole will grab the most attention for clues as to whether the US Fed will lift interest rate in September or December meeting. Movement of the US dollar index will have big impact on base metals.

Haruhiko Kuroda, governor of the Bank of Japan (BOJ) said there is a big chance that the BOJ will announce further monetary easing in September. Haruhiko Kuroda added that while there is still room for negative interest rate to be cut further, profit in banking industry will not shrink markedly due to negative interest rate. The Japanese government announced JPY 2.81 billion stimulus earlier, but the scale was smaller than expected. Actual new spending by the Japanese government was a mere JPY 6.2 trillion, versus additional spending of JPY 4.6 trillion for this year.

Preliminary manufacturing PMIs for August in major western countries will be released on Tuesday. The UK’s leave decision did not have big impact on members of the euro zone for now, with July manufacturing PMIs even up slightly. 

US GDP grew 1.2% YoY in Q2, better than Q1, but was worse than expected. The US dollar index dived following release of US Q2 GDP. The release date for revised US Q2 GDP is on the same day as US Fed Chairwoman’s speech. As such, the US dollar index will swing widely before release of revised US Q2 GDP. 

Crude oil prices have gained 20% since early August. The USD 50/bbl crude oil price is still quite attractive for oil producers. The number of oil wells in operation was 406 in the US in the week ending August 19, up 10 on a weekly basis, and up a lot from 316 seen in late May. Rising crude oil prices will incentivize production. While Saudi Arabia proposed to hold an oil output freeze meeting between OPEC and non-OPEC in September, chance is small for agreement to be reached. Crude oil prices will benefit from expectations for the output freeze meeting, but will suffer selloffs after the meeting. 

See SMM price forecast, please click:Base Metals to Remain in Wide Trading, SMM Says