Global Stock Markets Rally is Bullish For Metal Prices

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Global stock markets continue to rise as we noticed last month. Stock markets have already made up for their losses following the U.K.’s decision to leave the European Union.

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This recovery suggests that investors are turning more positive on the health of the global economy, which bodes well for industrial metals demand growth.

The Chinese stock market ETF hits a nine-month high. Source: MetalMiner analysis of @Stockcharts.com data.

The Chinese stock market ETF hits a nine-month high. Source: MetalMiner analysis of @Stockcharts.com data.

This is especially true when China’s stock markets rally. China’s stock market is possibly the best benchmark for China’s economy or at least investors’ sentiment about the Chinese economy. The slowdown in the Chinese economy (weak demand with too much capacity) explains why industrial metals peaked in 2011.

China’s stock market bottomed out earlier this year (coinciding with a bottom in metal markets) thanks to China’s stimulus measures that fueled demand growth. Chinese shares have risen rapidly this month to the highest levels in nine months as investors expect its central bank to ease monetary policy again.

Caixin’s PMI measure of manufacturing in China moved above the boom-bust line of 50 last month, for the first time since early 2015 while China’s Q2 GDP growth came at 6.7%, beating the market’s expectations.

Industrial Metals Continue to Climb

Industrial Metals ETF rises to a 13-month high. Source: MetalMiner analysis of @Stockcharts.com data.

Industrial Metals ETF rises to a 13-month high. Source: MetalMiner analysis of @Stockcharts.com data.

Not surprisingly, the trend in industrial metal prices looks pretty similar to China’s stock market. The recent rally in global stock markets, particularly in China, favors a continuation of this year metals’ bull market.

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Some industrial metals have benefited from a bull narrative of supply shortfall this year but, on top of that, they have also benefited from higher demand coming from China which is being reflected in the surge in Chinese imports this year.

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