The base metals complex accelerated its decline yesterday, posting an average loss of 1.7 percent, as investors likely continued to hold the view that base metals are susceptible to adverse spillover effects stemming from the sell-off in the precious metals complex, most notably in gold. As such, tin, the most volatile and illiquid metal, performed the worst, down 3.6 percent, followed by zinc, down 2.0 percent. While copper and nickel were down 1.8 percent each, aluminium finished the day almost flat, down 0.1 percent.
Precious metals were mixed: gold closed 0.7 percent lower and silver ended 0.3 percent down, whereas palladium and platinum posted respective gains of 1.4 percent and 0.5 percent. As a result, while gold and silver continued to struggle to bottom-out following steep declines earlier this week, PGMs, especially palladium, managed to push higher from their lows, unwinding deep oversold conditions in the process.
This morning, base metals remain broadly unchanged, with copper and zinc up 0.6 percent and 0.3 percent, respectively, tin down 0.3 percent, nickel down 0.2 percent, and aluminium and lead down 0.1 percent each. The precious metals complex is holding relatively better, with gold and silver up 0.3 percent each while palladium and platinum up 0.4 percent each.
In Shanghai, the July base metals contracts are, on net, weaker, posting an average loss of 1.0 percent, with nickel leading the declines (-2.3 percent), followed by tin (-1.6 percent), zinc (-1.1 percent), and copper and aluminium (down 0.6 percent each), but it will be remarked that lead is about unchanged. Meanwhile, spot copper in Changjiang is up 0.9 percent at Rmb 39,800-40,000, while the backwardation with the futures is at $62.8 per tonne and the LME/Shanghai copper arb ratio is at 1 to 7.73, up from 1 to 7.59 yesterday, indicating that the arb window becomes increasingly open to traders. In the precious metals complex, gold and silver are quiet, with the former unchanged and the latter up 0.1 percent.
Bonds – Government bonds rallied sharply on Wednesday, pushing yields lower, particularly in Europe. The US 10-year yield fell 0.36 basis points (or 0.15 percent) to 2.3199 percent; the Germany 10-year yield decreased 3.4 basis points (or 4.35 percent) to 0.747 percent, while the Spain 10-year yield dropped 2.1 basis points (or 1.04 percent). The relative under-performance in the US bond markets was likely due to the release of better-than-expected home sales in the US in June, suggesting an ongoing improvement in the economy, which thereby raised the likelihood of an initial rate increase at the September FOMC meeting.
Equities – Broad stocks continued to push lower for a second consecutive day yesterday as the release of weaker-than-anticipated earnings results from US technology stocks, most notably Apple and Microsoft, likely dampened investor sentiment across the global equity markets. The Euro Stoxx 50 closed 0.34 percent down at 3,635, the Dow Jones ended up 0.38 percent lower at 17,851, while the S&P 500 finished 0.24 percent off at 2,114. Despite a weak session in Europe and the US yesterday, Asian equities are, on average, trading higher this morning, after the Greek Parliament approved a second package of measures imposed by creditors earlier today in order to open talks for a new bailout program. The Nikkei 225 is up 0.40 percent, the Hang Seng is up 0.63 percent, and the CSI 300 is up1.13 percent, but the Kospi is slightly flat (-0.10 percent), as the central bank of South Korea indicated that economic growth slowed more-than-anticipated in Q2.
Currencies – The US dollar rebounded against most currencies yesterday following a sharp correction on Tuesday. The appreciation of the dollar likely reflected an upward revision among market participants in the timing and speed of US monetary policy normalisation following the significant increase in US home sales in June (5.49 million units), marking their highest level since February 2007, and thus corroborating the positive FOMC economic outlook on the economy. While the dollar strengthened against the euro, the yuan and the yen, it continued to weaken against the sterling, with the Cable up 44 pips, partly triggered by the release of the Bank of England minutes of the monetary policy committee meeting in July, fuelling market expectations of an imminent UK rate increase.
Economic data already out today indicated that Japan’s trade balance deficit recorded 0.25T yen in June, in line with expectations, but up from an downwardly-revised 0.18T yen deficit in May. Economic indicators released later today will include Spanish unemployment rate for Q2, Europe’s consumer confidence and US’ CB leading index for June, as well as US unemployment claims for the week ending July 17.
While the base metals complex has fallen at an increasing pace of late, partly reflecting broad-based weakness across the commodity markets, we hold the view that the risks to base metals prices are skewed to the downside in the short-term as investors will likely continue to reduce their exposure to the complex amid a fragile sentiment.
Given the weakening of the US dollar earlier this week did not help gold and silver to push higher from their lows, we believe that both metals are vulnerable to further downside in the short-term, driven by higher US real interest rates (having a negative impact on precious metals, most notably on gold prices) and positive developments in Greece (reducing safe-haven demand).
| BST | 05:03 | +/- | +/- % | Lots |
| Cu | 5387 | 30.5 | 0.6% | 3704 |
| Al | 1660 | -1 | -0.1% | 392 |
| Ni | 11430 | -25 | -0.2% | 812 |
| Zn | 2003 | 6 | 0.3% | 457 |
| Pb | 1768 | -1 | -0.1% | 72 |
| Sn | 14700 | -50 | -0.3% | 4 |
| Steel | 300 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | 0.0% | 5,441 | ||
| Gold | 1098.3 | 3.4 | 0.3% | |
| Silver | 14.84 | 0.05 | 0.3% | |
| Platinum | 985 | 4 | 0.4% | |
| Palladium | 636.6 | 2.6 | 0.4% | |
| Average PM | 0.4% | |||
| SHFE Prices 5:05 BST | Change | % Change | |
| Cu | 39410 | -240 | -0.6% |
| AL | 12320 | -70 | -0.6% |
| Zn | 15215 | -175 | -1.1% |
| Pb | 12940 | -5 | 0.0% |
| Ni | 84640 | -1990 | -2.3% |
| Sn | 108500 | -1810 | -1.6% |
| Average change (base metals) | -1.0% | ||
| Rebar | 2055 | 2 | 0.1% |
| Au | 222.05 | 0.1 | 0.0% |
| Ag | 3262 | 3 | 0.1% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
|
00:50am
|
Japan | Trade Balance | -0.25T | -0.25T | -0.16T |
| 08:00am | EU | Spanish Unemployment Rate | 22.9% | 23.8% | |
| 1:30am | US | Unemployment Claims | 279K | 281K | |
| 3:00am | EU | Consumer Confidence | -6 | -6 | |
| 3:00am | US | CB Leading Index m/m | 0.1% | 0.7% | |
The post Base metals vulnerable to adverse spillovers from recent gold price plunge appeared first on The Bullion Desk.
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