Silver may remain choppy amid Trump-led tariff war: Mirae Asset Sharekhan

Silver price today: Dip buying around $31.50 is preferred over chasing the rally. Support is at $31.27

Silver: Up for the second day as US Dollar falls

 

Silver Performance:

 

Spot silver, in-line with gold, rallied for a second day in a row on March 4 on a weaker US Dollar as invetors bet on interest rate cuts. Silver changed hands at $31.77, up around 0.23 per cent on Tuesday. The MCX May Silver contract settled at Rs 96,236, up around 0.19 per cent.

 

Tariff developments:

 

US President Donald Trump has imposed 25 per cent tariffs on most of the Canadian and Mexican imports and levied an additional 10 per cent tariffs on China, which will affect around 1.50 trillion in annual imports. Canadian energy produce will be taxed at 10 per cent. 

 

 

Canada, however, has hit back with phased levies on $107 billion worth of US goods whereas China has imposed tariffs of as high as 15 per cent, which will be mainly on the US farm goods. Mexico is set to announce tariffs and other measures on March 9. Trump has indicated more tariffs including reciprocal tariffs in April on all US trading partners that have tariffs and other barriers on US goods. Besides that, a 25-per cent tariff will be imposed on the European Union as tariffs on imports of copper and aluminum are being investigated.

 

Data roundup:

 

The US ISM manufacturing (January) came in at 50.30; thus, falling short of the estimate of 50.70. Internals were disappointing as ISM new orders and employment contracted whereas price paid jumped from 54.90 in December to 62.40 (forecast 56). The ISM data is yet another data in the string of disconcerting US data off late.

 

The Eurozone unemployment rate (January) came in at 6.3 per cent versus the estimate of 6.2 per cent, whereas the prior data was revised higher from 6.2 per cent to 6.4 per cent. CPI (February preliminary) inflation rose 2.4 per cent Y-o-Y in February as against the forecast of 2.3 per cent, though it slowed down from 2.5 per cent in December.  Also Read: Gold-Silver Price Today

 

The Fed Rate cut bets:

 

Traders expect the US Federal Reserve to cut rates thrice this year as they see more than 75 per cent chance of the Fed cutting rates in June.

 

US Dollar and yields:

 

The US Dollar Index slumped to 105.87, a three-month low, on Fed rate cut bets and was noted at 106.11, down nearly 0.60 per cent on Tuesday.

 

The ten-year yields sank to 4.1 per cent, the lowest since October 21, and were at 4.18 per cent, up around 3 bps yesterday. The two-year yields fell 2 bps to 3.92 per cent, reflecting bull steepening, on growing US recession risks as the 2–10-year yield spread widened to 26 bps, the highest since February 12.

 

Silver Institute and Metals Focus on silver:

 

The silver market is on track of a fifth consecutive year of deficit as industrial demand is likely to drive demand higher. Economic and geopolitical uncertainties are fuelling silver demand, though concerns about Chinese economy are capping the prices.

 

Most of the above-ground stocks are immobile and are unavailable to the market regardless of the price with only small net additions to, or subtractions from, stocks on an annual basis.

 

ETF:

 

Total known global silver ETF holdings stood at 709.299 MOz and are down nearly 9 MOz this year.

 

COMEX Silver inventory:

 

COMEX silver inventory at 408.808MOz, as noted on March 3, are at a record high level at present on delivery demand.

 

Upcoming data:

 

Traders will monitor US ADP employment change (February), S&P Global US services PMI (February final), factory orders (January), durable goods orders (January final) and the crucial ISM services (February) to be released today.

 

The European Services and composite PMIs (February final) will also be on traders' radar.

 

Upcoming events:

 

The European Central bank will announce its monetary policy on March 6 and is expected to cut deposit rate facility and main refinancing rate by 25 bps to 2.5 per cent and 2.75 per cent, respectively.

 

The third session of 14th National Committee of the Chinese People's Political Consultative Conference, that has started on March 5, will continue until March 10. The Chinese authorities have set the official budget deficit target to around 4 per cent, the highest in over three decades, as the government is focusing on boosting domestic consumption and investment in high-tech manufacturing. The fiscal gap will be around 12 trillion Yuan, which may enable the nation to achieve a growth target of 5 per cent. It is to be noted that consumption contribution to GDP growth is below 45 per cent -- the lowest since 2006 as household spending remains anaemic amid real estate slump and weak job market.

 

Silver Outlook:

 

Silver is likely to be somewhat volatile and choppy on headwinds of demand concerns due to trade wars and weak Chinese economy. However, the metal is expected to get support on weaker Dollar and Chinese fiscal stimulus likely to be announced at the ongoing China's National People's Congress.

 

Dip buying around $31.50 is preferred over chasing the rally. Support is at $31.27 (MCX May Silver contract Rs 94,700)/$31 (Rs 93,900). Resistance is at $32 (Rs 96,900)/$32.55 (Rs 98,600).    ==============  Disclaimer: Praveen Singh is associate vice president of fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.