Base metals edged slightly higher on Tuesday, with an average gain of 1.1 percent, in part reflecting renewed weakness in the US dollar coupled with higher energy prices.
Lead was the best performing base metal, up 2.3 percent, followed by zinc (+2.0 percent) and tin (+1.1 percent), helped by a continued drawdown of LME stocks. Meanwhile, nickel, copper, and aluminium posted only modest gains of 0.2 percent, 0.6 percent, and 0.8 percent, respectively.
Similarly, precious metals were firmer yesterday, driven by a depreciating US dollar combined with safe-haven flows which are triggered by investors’ fears over the Greek liquidity – and solvency – issue. While gold was up 0.75 percent, silver was the best performer (up 1.38 percent), corroborating the latest CFTC statistics which indicated that speculators have become relatively more bullish on silver compared to gold.
This morning, the base metals complex is slightly up, with tin up 0.6 percent, aluminium up 0.3 percent, and zinc and lead both up 0.1 percent. In contrast, nickel is down 0.6 percent, while copper is flat.
The precious metals complex is marginally up too, with palladium, platinum and silver up by 0.3 percent, 0.2 percent, and 0.2 percent, respectively. Meanwhile, gold is unchanged, trading at $1,192 per ounce.
In Shanghai, the July base metals contracts are mixed, with nickel, tin, and aluminium down 1.7 percent, 0.6 percent, and 0.1 percent, respectively.
In contrast, lead, zinc, and copper are up 1.0 percent, 0.9 percent, and 0.6 percent, respectively. Meanwhile, spot copper in Changjiang is up 0.3 percent at Rmb 46,100-46,230, while the backwardation with the futures is at $16 per tonne and the LME/Shaghai copper arb ratio is at 1 to 7.16. In the precious metals complex, gold and silver are slightly former, up 0.4 percent and 0.6 percent, respectively.
Bonds – After a temporary pause at the end of last week, the global sell-off in government bonds has resumed since the beginning of the week, reflecting the ongoing unwinding of highly correlated positions in a lower trading liquidity environment after investors reassessed their view on inflation dynamics, i.e., inflation expectations picked up triggered by the strengthening of oil prices . While the German 10-year yield increased markedly about 10 basis points to 0.68 percent yesterday, the US 10-year yield stabilised after reaching an intraday high of 2.30 percent.
Equities – The turbulence in global bond market spread to European equities in so far as an increasing number of market participants have reached their risk limits due to the higher level of volatility in bonds, forcing them to reduce their exposure in the stock market. The Euro Stoxx 50 ended 1.42 percent lower; the Dow Jones was slightly down 0.20 percent. In Asia this morning, the Nikkei 225 is up 0.52 percent, in part driven by a better than expected economy watchers sentiment, the Hang Seng is about unchanged, the CSI 300 is down 0.11 percent and the Kospi is up 0.71 percent.
Currencies – The US dollar resumed its consolidation yesterday, reflecting rising German bunds yields, boosting the demand for euros and thus weakening the value of the US dollar against the euro, despite renewed concerns over the Greek debt. Interestingly, despite a risk-off environment, the US dollar continues to be under pressure (while it should rise instead) the unwinding of global bond positions implies covering of euro short positions as the euro has become the key funding currency.
The economic agenda is quite heavy today. A raft of Japanese, Chinese, and European data was already released this morning. In Japan, bank lending increased 2.6 percent in April year-on-year while economic watchers sentiment came at 53.6, above market expectations of 52.1, and up from 52.2 in March. In China, industrial production increased at 5.9 percent year-on-year, below market expectations of 6.1 percent, but up from 5.6 percent year-on-year in March. Fixed asset investment increased 12 percent year-to-date in April, below market expectations of 13.6 percent, and down from 13.5 percent year-to-date in March. Finally, retail sales increased at a lower than expected 10.0 percent year-on-year in April, broadly unchanged from March. In Europe, French GDP increased strongly in Q1 2015 at 0.6 percent, marking its highest level in two years, far above market expectations of 0.4 percent, after stagnation in Q4 2014 (0.0 percent). Still, German GDP increased a lower-than-expected 0.3 percent in the first three months of this year, below market expectations of 0.5 percent, and down from 0.7 percent in fourth quarter of 2014. In addition, German consumer prices rose by 0.5 percent in April from the previous year, above market expectations of -0.1 percent, and up from -0.1 percent in March. Against this backdrop, the euro continues to push higher as the eurozone economy appears to be on the mend.
Economic data released later today will include flash estimate GDP Q1 2015 and industrial production for April in the euro area, US retail sales and import prices for April, as well business inventories for March.
While equities have been under pressure on account of global bond market turbulence of late, the Great Rotation (seen for the first time in May 2013 when investors liquidated their bond positions to pile into equities after former Fed Chairman Bernanke warned that the FOMC would consider reducing the accomodative stance of monetary policy) could occur this year. In this environment, equities tend to rise while bonds decline, adversely affecting commodity prices in the process, particularly if the US dollar appreciates.
The base metals complex continued to trend higher despite poor Chinese economic data, suggesting that investors prefer not to fight the PBoC which continues to ease its monetary policy stance in a bid to combat increasing deflationary risks. Further, the positive trend in base metals seems to be reinforced by the weakness in the US dollar.
The turbulence in equity and bond markets coupled with a depreciating US dollar exerted upward pressure on the precious metals complex. However, gold and silver have a tendency to benefit from the uncertainty in the financial markets during short periods of time. Still, it will be remarked that downward pressure on precious metals could re-emerge if (1) the situation in the global bond market stabilises and (2) real interest rates continue to move higher -in light of a strong correlation between precious metals prices and real interest rates.
| Overnight Performance | ||||
| BST | 07:00 | +/- | +/- % | Lots |
| Cu | 6418 | -3 | 0.0% | 1257 |
| Al | 1898.5 | 6.5 | 0.3% | 343 |
| Ni | 14220 | -80 | -0.6% | 566 |
| Zn | 2355 | 1.5 | 0.1% | 736 |
| Pb | 2061.5 | 2.5 | 0.1% | 232 |
| Sn | 16000 | 100 | 0.6% | 19 |
| Steel | 395 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | 0.1% | 3,153 | ||
| Gold | 1192.3 | -0.2 | 0.0% | |
| Silver | 16.54 | 0.04 | 0.2% | |
| Platinum | 1132.4 | 2.4 | 0.2% | |
| Palladium | 785.6 | 2.6 | 0.3% | |
| Average PM | 0.2% | |||
| SHFE Prices 07:00 BST | Change | % Change | |
| Cu | 46000 | 260 | 0.6% |
| AL | 13360 | -20 | -0.1% |
| Zn | 17065 | 160 | 0.9% |
| Pb | 13510 | 135 | 1.0% |
| Ni | 111370 | -1900 | -1.7% |
| Sn | 120280 | -740 | -0.6% |
| Average change (base metals) | 0.0% | ||
| Rebar | 2275 | -16 | -0.7% |
| Au | 240.15 | 0.85 | 0.4% |
| Ag | 3596 | 22 | 0.6% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
| 00:50 | Japan | Current Account | 2.07T | 1.34T | 0.61T |
| 01:50 | Japan | Bank Lending y/y | 2.60% | - | 2.60% |
| 06:00 | Japan | Economy Watchers Sentiment | 53.6 | 52.1 | 52.2 |
| 06:30 | China | Industrial Production y/y | 5.90% | 6.10% | 5.60% |
| 06:30 | China | Fixed Asset Investment ytd/y | 12.00% | 13.60% | 13.50% |
| 06:30 | China | Retail Sales y/y | 10.00% | 10.40% | 10.20% |
| 06:30 | EU | French Prelim GDP q/q | 0.60% | 0.40% | 0.00% |
| 07:30 | EU | German Prelim GDP q/q | 0.30% | 0.50% | 0.70% |
| 07:30 | EU | German Final CPI m/m | 0.00% | -0.10% | -0.10% |
| 07:30 | EU | German WPI m/m | 0.40% | 0.40% | 1.00% |
| 7:45 | EU | French CPI m/m | 0.10% | 0.20% | 0.70% |
| 7:45 | EU | French Prelim Non-Farm Payrolls q/q | -0.10% | 0.00% | 0.00% |
| 09:00 | EU | Italian Prelim GDP q/q | 0.20% | 0.00% | |
| 10:00 | EU | Flash GDP q/q | 0.50% | 0.30% | |
| 10:00 | EU | Industrial Production m/m | 0.10% | 1.10% | |
| 13:30 | US | Core Retail Sales m/m | 0.40% | 0.40% | |
| 13:30 | US | Retail Sales m/m | 0.30% | 0.90% | |
| 13:30 | US | Import Prices m/m | 0.30% | -0.30% | |
| 15:00 | US | Business Inventories m/m | 0.20% | 0.30% | |
The post Firmer base and precious metals amid an uncertain macro environment appeared first on The Bullion Desk.
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