Base metals pushed lower on Thursday, posting an average loss of 1.9 percent, in part triggered by a higher US dollar following a stronger-than-anticipated May retail-sales report, suggesting that weaker consumption data in the early months of the year were transitory. Tin was the worst performing base metal, down 3.1 percent, followed by lead (-3.0 percent), copper (-2.4 percent), and nickel (-1.5 percent), while zinc and aluminium remained broadly unchanged.
Similarly, precious metals were slightly lower yesterday as the renewed strength in the US dollar apparently exerted downward pressure on the complex. With gold and silver down 1 percent and 3 percent, respectively, it will be noticed that precious metals held relatively better than the base metals complex. In our view, this reflects safe-haven flows due to the lack of progress in reaching a deal between Greece and its international creditors while Greece’s bailout deal is due to expire at the end of month, which incidentally led the IMF to withdraw from negotiations yesterday.
This morning, the base metals complex is slightly down, with nickel down 1.5 percent, followed by lead (-0.8 percent), and zinc (-0.3 percent), while tin is up 0.9 percent and copper and aluminium are broadly flat. The precious metals complex is about unchanged, with gold and palladium slightly up by 0.2 percent each, while silver and platinum are down 0.1 percent and 0.4 percent, respectively.
In Shanghai, base metals are down, with nickel, lead, and copper down by 3.4 percent, 2.8 percent, and 1.9 percent, respectively, while aluminium is down 1.2 percent and tin is down 1.4 percent. Meanwhile, spot copper in Changjiang is up 1.9 percent at Rmb 43,000-43,130, while the backwardation with the futures is at $41.8 per tonne and the LME/Shanghai copper arb ratio is at 1 to 7.25. In the precious metals complex, gold and silver are slightly weaker, with gold and silver down about 0.4 percent each.
Bonds – Government bonds rallied yesterday. The US 10-year yield was down 9.76 basis points to 2.38 percent after having touched earlier 2.50 percent for the first time since September, despite US data which pointed to an improvement in the US economy. This could suggest that investors, who had been forced to reduce their bond exposure during the bond sell-off in May, have started to re-build their positions. Similarly, European government bonds rallied, with the Germany 10-year yield down 9.7 basis points to 0.88 percent after having touched 1 percent on Wednesday, triggered in part by safety bids due to fears over a potential Greek default.
Equities – While US and European equities edged higher on Thursday, with the Dow Jones posting a gain of 0.25 percent and the Euro Stoxx 50 up 0.72 percent, it will be remarked that equities reversed gains after IMF spokesman Gerry Rice indicated that no progress had been made in narrowing major differences in key areas with Greece, such as on pensions, taxes, and financing. In Asia this morning, the Nikkei 225 is down 0.01 percent, the Hang Seng is up 0.55 percent, the CSI 300 is up 0.63 percent, AND THE Kospi is down 0.18 percent.
Currencies – The US dollar pushed higher yesterday, driven in part by better-than-expected retail sales in May (+1.2 percent from April), suggesting that the US economy is re-gaining momentum after a contraction in economic growth in Q1 (-0.7 percent) and mixed macroeconomic data in April. However, it is worth noting that the US dollar has remained weaker since the beginning of the week, in part reflecting US President Obama’s remarks on the adverse impact of the dollar on the US economy, which he later denied, however.
Economic data already out today indicated that in Japan, in April, revised industrial production rose 1.2 percent from the prior month, above market expectations of 1.0 percent, and up from 1.0 percent in March, whereas tertiary industry activity decreased 0.2 percent from March, below market expectations of 0.4 percent, but up from -1.0 percent in March. In Europe, German WPI in May rose 0.5 percent, above market expectations of 0.3 percent, and up from 0.4 percent in April.
Economic indicators released later today will include European industrial production for April, US PPI and core PPI for May, and US prelim UoM consumer sentiment and inflation expectations for June.
The relative strength in the base metals complex earlier this week appears to have come to an end since yesterday, most notably with respect to copper and lead. While base metals are somewhat quiet this morning, weakness could emerge later in the day, especially if the US dollar continues to push higher, supported by better-than-expected US data.
The precious metals complex appears to hold relatively better, particularly gold, reflecting some safe-haven bids driven by difficult negotiations between Greece and its creditors as well as lower US real interest rates. However, we believe that the complex remains vulnerable to downside as equities could continue to push higher, which could therefore prompt investors to reduce their exposure to precious metals in a bid to pill into equities.
| Overnight Performance | ||||
| BST | 06:42 | +/- | +/- % | Lots |
| Cu | 5890 | 1.5 | 0.0% | 1668 |
| Al | 1746 | -0.5 | 0.0% | 511 |
| Ni | 13125 | -205 | -1.5% | 1141 |
| Zn | 2121 | -6 | -0.3% | 668 |
| Pb | 1851 | -15 | -0.8% | 603 |
| Sn | 15065 | 140 | 0.9% | 18 |
| Steel | 300 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | -0.3% | 4,609 | ||
| Gold | 1183.3 | 1.8 | 0.2% | |
| Silver | 16 | -0.01 | -0.1% | |
| Platinum | 1102 | -4 | -0.4% | |
| Palladium | 742.3 | 1.3 | 0.2% | |
| Average PM | 0.0% | |||
| SHFE Prices 06:45 BST | Change | % Change | |
| Cu | 42740 | -820 | -1.9% |
| AL | 12745 | -150 | -1.2% |
| Zn | 16215 | -120 | -0.7% |
| Pb | 12855 | -370 | -2.8% |
| Ni | 98230 | -3460 | -3.4% |
| Sn | 113800 | -1660 | -1.4% |
| Average change (base metals) | -1.9% | ||
| Rebar | 2318 | -31 | -1.3% |
| Au | 239.7 | -0.9 | -0.4% |
| Ag | 3559 | -15 | -0.4% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
|
5:30am
|
Japan | Revised Industrial Production m/m | 1.2% | 1.0% | 1.0% |
|
5:35am
|
Japan | Tertiary Industry Activity m/m | -0.2% | 0.4% | -1.0% |
| 7:00am |
German WPI m/m
|
0.3% | 0.4% | ||
| 10:00am |
Industrial Production m/m
|
0.4% | -0.3% | ||
| 1:3pm |
PPI m/m
|
0.4% | -0.4% | ||
| 1:3pm |
Core PPI m/m
|
0.1% | -0.2% | ||
| 3:00pm |
Prelim UoM Consumer Sentiment
|
91.3 | 90.7 | ||
| 3:00pm |
Prelim UoM Inflation Expectations
|
- | 2.8% | ||
(Editing by William Adams)
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