Metals Resume Rally

Metals Resume Rally

Divergent strength in April-May is a key takeaway as metals enter the summer. Despite the strongest two months for the dollar in almost two years, metals have simply marked time, backing up into good support levels. Sustained greenback strength is a primary risk, though metals appear to be looking ahead to the buck holding May’s peak along with U.S. bond yields, or inflationary repercussions of sustained higher yields. A weak dollar and inflation are strong metals companions.

Industrial metals are poised to accelerate their outperformance vs. the aging stock-market bull in this rate-tightening cycle, with demand exceeding supply, bottoming equities volatility and a peak greenback. Gold indicates it will need sustained dollar strength to keep it from breaking higher from its compressed range.

Rested and refreshed, all metals index set to rejoin the rally

As a combined major sector, metals’ subdued 2018 performance indicates a sufficient consolidation of last year’s sharp gains to resume a rally. Approaching 2H, precious and industrial primary metals prices appear low with favorable drivers

Metals still digesting 2017’s gains

The primary question in metals is what it’ll take to end a nascent rally. Sustained dollar strength and a reversal of excess demand vs. supply are the primary suspects, though both are unlikely. Our analysis of the primary drivers for the Bloomberg All Metals Index components shows that the ratio of demand vs. supply is the highest since 2006. The annualized measure likely has peaked, but should remain well above par on the back of the improving global economy and strong purchasing managers’ indexes.

In a reinflating global economy, metals remain relatively attractive less than three years into a bull market vs. about a decade-long run for stocks. Appearing more paused and refreshed at the end of May, the all-metals index continues to consolidate the 21% gain from 2017. Read Full Article

Bloomberg Intelligence June 1, 2018

This analysis is by Bloomberg Intelligence analyst Mike McGlone. It appeared first on the Bloomberg Terminal

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