By Pritam Kumar Patnaik
The life of a trader is never void of any excitement, the week that just went by only exemplified that fact. Volatility during the week impacted all asset classes, including commodities. Data coming out of the US and China ranged from bad to good, impacting market volatility and added to the woes of traders and market participants.
The week started on a gloomy note on the back of a global economy slowdown news, but come Friday, the trend seemed to be turned on its head.
Copper, on the London Metal Exchange (LME), rose more than one per cent on Friday morning in Asian trade, recovering from an 18-month low hit in the previous session.
Copper has been facing its biggest weekly drop in almost two months on worries over slowing growth in China, the largest consumer of Copper.
However, by late afternoon, Chinas central bank cut bank reserve requirement ratio (RRR) by one per cent or 100 basis points as it looks to reduce the risk of a sharper slowdown in the worlds second-largest economy. The move aided the metal to close 3.2 per cent higher on both COMEX and LME platforms.
Later in the evening, strong US job report and US Fed chairmans comment on Fed being flexible in its plan to hike interest rates led to the Dow Jones Industrial Average (DJIA) rising by almost 747 points, its fourth biggest point increase of all time.
The non-farm payroll from US added 3.12 lakh new jobs in December 2018.
Its easy to be influenced by a rising market. However, one cannot ignore the fundamentals, which cut through the noise and look at factors of supply and demand.
Chinas factory activity contracted for the first time in 19 months in December 2018 as domestic and export orders weakened further.
It is expected that Chinas economic growth could fall below 6.5 per cent in the fourth quarter on the back of weak and contracting demand.
While the measures, such as RRR cuts, are aimed at supporting small and private companies, that alone may fall short in reinstating the demand cycle.
Going forward, unless some of the negative news abate, some more selloff could be seen in base metals.
Saying that, next week looks to be positive for copper. The market trend, next week, will be dictated by global cues as investors will look to any positive outcome from the US and China.
(Pritam Kumar Patnaik is business head at Reliance Commodities. Views in this article are his own.)
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