The base metals started Tuesday on a back footing, but closed the day with strong gains averaging 1.8 percent, led by a 3.6 percent rally in nickel with aluminium up 2.9 percent to $1,969 and zinc up 2.1 percent to $2,397. Tightness in Shanghai Futures Exchange July nickel is thought to be one of the factors driving nickel, while the general run up across the base metals is also driving sentiment. From the lows this year, the base metals were up an average of 20.1 percent at yesterday’s highs, with lead up the most with a 28.7 percent gain and aluminium up the least with a 12.6 percent gain. Copper, lead, zinc and tin have all now climbed more than 20 percent from the lows, which is generally thought to be a sign that they are in bull markets. There are a few strikes affecting some of the metals, but none where supply is tight, so it does not seem likely that it is concerns about current supply that is driving market – although the talk may be fuelling fund buying as it does look as though upward momentum has become a key driver.
Precious metals also saw follow through buying yesterday adding to an average of two percent to the gains seen on Monday – a slightly weaker dollar helped, but generally our main reason for liking gold is we feel other markets from bonds to equities are looking over extended and in danger of correcting, so gold may offer a relatively cheap safe-haven. The gold price closed up 1.4 percent at $1,193.80, while the silver price closed up 2.7 percent.
This morning the base metals are consolidating yesterday’s gains with prices up an average of 0.2 percent, nickel remains robust with a 0.9 percent gain to $14,375, tin is up 0.5 percent, while the rest are either side of unchanged with copper at $6,429. Volume has been average with 4,805 lots traded.
Precious metals are little changed this morning, up an average of 0.2 percent, with the PGMs up around $3 per ounce, with gold up $1.8 at $1,195.60 and silver off slightly at $16.55. A weaker dollar index, last at 94.80, is helping to underpin the precious metals.
In Shanghai, the July base metals are up an average of 1.8 percent, led by a 3.7 percent rally in nickel to Rmb 112,020, tin is up 2.7 percent, zinc is up 1.4 percent, aluminium is up 1.3 percent, while copper and lead are up around 0.8 percent with copper at Rmb 46,020. Steel rebar is up one percent, while spot iron ore is trading around $59.10
Spot copper in Changjiang is up 0.3 percent at Rmb 45,950-46,150, the backwardation with the futures has narrowed to an equivalent of $20 per tonne and the arbitrage ratio between LME/Shanghai copper has eased to 1 to 7.15, indicating the arb window remains shut.
Precious metals in Shanghai are mixed with gold unchanged at Rmb 241.05 while silver is off 0.5 percent at Rmb 3,606.
Equities were weaker yesterday with the Euro Stoxx 50 falling 2.4 percent and the Dow down 0.8 percent. Jitters over Greece, a wider than expected US trade deficit and a higher oil price, all seemed to unnerve equity investors. In Asia, the Chinese market recovered from yesterday’s weakness with the CSI 300 up two percent, the Nikkei remains on holiday, the Hang Seng is up 0.7 percent, while the Kospi caught up with yesterday’s weakness when it was closed, it is off 1.5 percent today.
Currencies – the dollar index’s rebound ran out of steam yesterday at a high of 95.95, it has since slipped to 94.83 – the low last week was 94.39. Conversely the euro is edging higher, last at 1.1233 and that is despite concerns over Greece, sterling has turned higher again, last at 1.5212, as have the aussie at 0.7962, the yen at 119.84, the rouble at 50.48, while the yuan is flat at 6.2005.
The economic agenda is busy, data already out included China’s services PMI that came in at 52.9 after a previous reading of 52.3 – later we get services PMI data out across Europe and the UK, plus data on EU retail sales and US data includes: ADP employment change, nonfarm productivity, unit labor costs and crude oil inventories, In addition, Fed Chair Janet Yellen and FOMC Dennis Lockhart are speaking – see table below for more details.
The base metals prices are all stretching higher, which suggests momentum buying has become a driving force, but with tightness in many of the nearby spreads easing, it does look as though the short-covering may have run its course now. As such, we wait to see how much follow through buying there is and whether its consumer driven or fund driven – we would expect more the latter, as the physical markets on the whole remain bearish. Given the gains already seen and the general economic backdrop we would be wary of chasing the market higher from here, especially as some of the metals, notably lead, have already rallied a long way without much of a pause.
The precious metals have got some lift of late, helped by weaker treasuries/bonds and the weaker dollar, but with the gold price below $1,200 it is hardly looking that bullish. The exception is palladium that has broken higher above resistance at $788. With the potential for corrections in other markets, we feel gold may well offer a cheap haven.
| Overnight Performance | ||||
| BST | 06:18 | +/- | +/- % | Lots |
| Cu | 6429 | -0.5 | 0.0% | 1715 |
| Al | 1973 | 4 | 0.2% | 1048 |
| Ni | 14375 | 130 | 0.9% | 1074 |
| Zn | 2394.5 | -2.5 | -0.1% | 766 |
| Pb | 2157 | 0 | 0.0% | 179 |
| Sn | 16200 | 75 | 0.5% | 23 |
| Steel | 395 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | 0.2% | 4,805 | ||
| Gold | 1195.6 | 1.8 | 0.2% | |
| Silver | 16.55 | -0.01 | -0.1% | |
| Platinum | 1147.9 | 2.9 | 0.3% | |
| Palladium | 790.8 | 2.8 | 0.4% | |
| Average PM | 0.2% | |||
| SHFE prices 06:18 BST | Change | % Change | |
| Cu | 46020 | 320 | 0.7% |
| AL | 13565 | 175 | 1.3% |
| Zn | 17345 | 235 | 1.4% |
| Pb | 13920 | 115 | 0.8% |
| Ni | 112020 | 4030 | 3.7% |
| Sn | 122080 | 3160 | 2.7% |
| Average change (base metals) | 1.8% | ||
| Rebar | 2362 | 23 | 1.0% |
| Au | 241.05 | 0 | 0.0% |
| Ag | 3606 | -18 | -0.5% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
| 12:00am | UK | BRC Shop Price Index y/y | -1.9% | -2.1% | |
| 2:00am | AUS | HIA New Home Sales m/m | 4.4% | 1.1% | |
| 2:30am | AUS | Retail Sales m/m | 0.3% | 0.4% | 0.7% |
| 2:45am | China | HSBC Services PMI | 52.9 | 53.1 | 52.3 |
| 8:15am | Spain | Spanish Services PMI | 57.4 | 57.3 | |
| 8:45am | Italy | Italian Services PMI | 52.1 | 51.6 | |
| 8:50am | France | French Final Services PMI | 50.8 | 50.8 | |
| 8:55am | Germany | German Final Services PMI | 54.4 | 54.4 | |
| 9:00am | EU | Final Services PMI | 53.7 | 53.7 | |
| 9:30am | UK | Services PMI | 58.6 | 58.9 | |
| 10:00am | EU | Retail Sales m/m | -0.4% | -0.2% | |
| 1:15pm | US | ADP Non-Farm Employment Change | 192K | 189K | |
| 1:30pm | US | Prelim Unit Labor Costs q/q | 4.5% | 4.1% | |
| 1:30pm | US | Prelim Nonfarm Productivity q/q | -1.8% | -2.2% | |
| 2:15pm | US | Fed Chair Yellen Speaks | |||
| 3:30pm | US | Crude Oil Inventories | 1.3M | 1.9M | |
| 6:30pm | US | FOMC Member Lockhart Speaks |
The post Base metals continue to stretch to the upside, gold price firm, but market quiet appeared first on The Bullion Desk.
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