Base and precious metals continue to fall toward new 2015 lows

Otmane El Rhazi from The Bullion Desk.

Base metals: copper falls to a new 2015 low today (intraday basis) and aluminium hit a new 2015 low yesterday. Precious metals: gold and silver are reaching new lows for the year today (intraday basis).

Base metals continued to edge lower on Thursday, reflecting negative spillovers resulting from earlier broad-based declines across the commodity markets. Except for tin, which was the only base metal to post a gain yesterday (+1.4 percent), the rest of the complex pushed lower, with lead performing the worst (-2.1 percent), followed by copper (-1.9 percent) and aluminium (-1.4 percent), which, incidentally, reached new 2015 lows, then zinc (-0.9 percent), while nickel remained broadly flat.

Similarly, the precious metals complex witnessed renewed selling pressure, reversing gains earlier in the day, with gold and silver falling to new 2015 lows. It appears that the intraday metal price reaction was highly sensitive to the foreign exchange value of the dollar. Indeed, precious metals managed to push higher earlier in the day thanks to the sharp fall in the greenback before reversing their trajectory when the US dollar began to regain upward momentum. Palladium was the worst performing precious metal, down 2.4 percent, followed by silver (-1.0 percent), while gold and platinum posted marginal losses of 0.4 percent and 0.2 percent, respectively.

This morning, base metals are trading sideways to lower amid heavy volumes, posting an average loss of 0.2 percent, with nickel down by 0.9 percent, followed by lead (-0.5 percent), and zinc (-0.2 percent). While aluminium is slightly up (+0.2 percent), copper and tin are broadly unchanged. Likewise, precious metals are slightly consolidating after witnessing extreme selling pressure yesterday, with gold leading the declines (-0.6 percent), followed by platinum and palladium (-0.3 percent each), while silver is about flat (+0.1 percent).

In Shanghai, the July base metals contracts are, on average, weaker, with copper, nickel, and lead down 1.9 percent, 1.3 percent, and 1.1 percent, respectively. In contrast, while aluminium is broadly unchanged (down 0.2 percent), zinc is down 0.5 percent. Meanwhile, spot copper in Changjiang is down 2.0 percent at Rmb 38,900-39,200, while the backwardation with the futures is at $85 per tonne and the LME/Shaghai copper arb ratio is up from yesterday at 1 to 7.88, indicating that the arb window becomes increasingly open to traders. In the precious metals complex, gold and silver are weaker, down 0.9 percent and 0.6 percent, respectively.

Bonds – US government bonds finished the day higher yesterday, pushing the 10-year yield down 4.50 basis points (or -1.94 percent), partly due to the intensification of the sell-off in US equity markets as investors likely piled into safe-haven assets, such as US 10-year bonds. However, it is worth mentioning that a temporary mini sell-off occurred earlier in the day, pushing yields sharply up, following the release of a stronger-than-expected unemployment claims report, pointing to an ongoing improvement in the economy, which thereby raised the likelihood of an initial rate increase at the September FOMC meeting.

Equities – European equities remained broadly unchanged on Thursday, with the Euro Stoxx closing 0.03 percent down at 3,634, whereas US equities continued to fall, with the Dow Jones ending down 0.67 percent at 17,732 and the S&P 500 closing down 0.57 percent at 2,102. It will therefore be remarked that stocks in Europe outperformed, on net, those in the United States as it appears that the ongoing positive developments in Greece continued to support European equities whereas the recent release of disappointing corporate financial results for a number of US companies, including Apple, Microsoft, and American Express, placed intense downward pressure on US equity markets.  In Asia this morning, the Nikkei 225 is off 0.61 percent, despite better-than-anticipated flash manufacturing PMI in July, the Hang Seng is down 0.89 percent, and the Kospi is off 0.75 percent, but the CSI 300 is up 0.81 percent after the Caixin flash China general manufacturing PMI surprised the market by falling to a 15-month low in July, suggesting that investors expect that Chinese authorities will continue to intervene further in order to stabilise the economy.

Currencies – The US dollar edged higher against most currencies on Thursday, after reversing losses earlier in the day. The catalyst was apparently the release of US unemployment claims for the week ending July 18. According to the US Department of Labor, initial claims decreased 26,000 to 255,000 from the previous week, marking their lowest level since 1973. Against this backdrop, market participants likely revised up their expectations of an initial rate increase at the September FOMC meeting in anticipation of a robust July employment report (due to be released on August 7), which could lead the FOMC to decide to raise the federal funds rate. The dollar rose against the sterling, the yen, and the yuan, but it continued to weaken against the euro after the Greek Parliament approved yesterday a second package of measures imposed by creditors in order to open talks for a new bailout program, which likely prompted investors to rebuild positions in euro-denominated assets amid an improving outlook for the eurozone economy.

The economic agenda is relatively heavy today. Economic data already released this morning indicated that in Japan, the flash manufacturing PMI rose to 51.4 in July, above market expectations of 50.5, and up from 49.9 in June, suggesting that manufacturing activity is growing again, while in China, the Caixin flash general manufacturing PMI, which is the earliest available indicator of manufacturing sector for July, fell to 48.2, below market expectations of 49.8, and down from 49.4 in June, marking its lowest level since April 2014. Economic data published later today will include July flash manufacturing PMI and flash services PMI for a number of countries in the eurozone, including France and Germany, the Belgian NBB business climate for July, US new home sales for June and US flash manufacturing for July.

 

The base metals complex continues to remain vulnerable to further downside, especially for copper and lead, reflecting an upward trend in LME inventories, and for aluminium and zinc, essentially driven by technical selling. On the other hand, tin, which tends to be the most volatile base metal traded on the LME, appears to hold relatively better, which could suggest that the bottoming-out  process starting in July will hold.

Given that the depreciation of the US dollar earlier this week combined with the fall in US real interest rates failed to induce upward pressure to the precious metals complex, we continue to hold the view that the short-term risks to prices are skewed to the downside in the near term. With gold and silver down to new 2015 lows today (intraday basis), PGMs could experience the same fate amid a continuing decline in investor interest.

  

BST	05:55	+/-	+/- %	Lots
Cu	5254.5	-1.5	0.0%	5881
Al	1640	3	0.2%	785
Ni	11320	-100	-0.9%	1002
Zn	1976	-3	-0.2%	1390
Pb	1723	-8	-0.5%	137
Sn	14950	0	0.0%	17
Steel	300	0	0.0%	Total
	Average (BM ex-Steel)		-0.2%	9,212
Gold	1083.8	-6.9	-0.6%
Silver	14.65	0.01	0.1%
Platinum	975.6	-3.4	-0.3%
Palladium	617	-2	-0.3%
	Average PM		-0.3%

 

 

SHFE Prices 5:55 BST		Change	% Change
Cu	38370	-740	-1.9%
AL	12295	-25	-0.2%
Zn	15105	-75	-0.5%
Pb	12755	-140	-1.1%
Ni	83690	-1110	-1.3%
Sn	108560	0	0.0%
Average change (base metals)	236.5		-0.8%
Rebar	2060	22	1.1%
Au	218.7	-1.9	-0.9%
Ag	3230	-20	-0.6%

 

Economic Agenda
BST	Country	Data	ACTUAL	Expected	Previous
02:35am	Japan	Flash Manufacturing PMI	51.4	50.5	49.9
02:45am	China	Markit Flash Manufacturing PMI	48.2	49.8	49.6
08:00am	EU	French Flash Manufacturing PMI		51.1	50.7
08:00am	EU	French Flash Services PMI		53.9	54.1
08:30am	EU	German Flash Manufacturing PMI		52.1	51.9
08:30am	EU	German Flash Services PMI		54.1	53.8
09:00am	EU	Flash Manufacturing PMI		52.5	52.5
09:00am	EU	Flash Services PMI		54.2	54.4
2:00pm	EU	Belgian NBB Business Climate		-4	-3.9
2:45pm	US	Flash Manufacturing PMI		53.7	53.6
3:00pm	US	New Home Sales		543K	546K

 

 

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