Renewed US-China tensions cloud price outlook

The close of China’s National People’s Congress (NPC) yesterday brought with it little in the way of additional news, leaving the huge fiscal stimulus announced last Friday – which was unambiguously positive for commodities demand – eclipsed by the decision this week to impose national security legislation on Hong Kong. In turn, the latter has led to a rekindling of US-China tensions. The possibility of a significant re-escalation in conflict between the two nations clearly presents a downside risk to our year-end price forecasts, particularly for agricultural commodities. Next week, a raft of PMI surveys for May are set to be released. Prices are likely to take direction primarily from China’s PMIs, which we expect to point to a gradual pick-up in activity and concomitant rise in commodities demand. Meanwhile, markets will continue to pay close attention to further developments in the US-China saga.