Base metals were mixed on Friday amid investor uncertainty over China’s growth trajectory after the release of weaker-than-expected Chinese manufacturing data for July. Except tin, which continued to push strongly higher (+3.3 percent), zinc, nickel, and lead finished the day lower, down by 1.1 percent, 0.7 percent, and 0.5 percent, respectively. On the other hand, copper and aluminium managed to rebound from their lows, posting respective gains of 0.2 percent and 0.5 percent, after reversing sharp losses earlier in the day.
Precious metals remained broadly unchanged amid a volatile session. While they witnessed intense selling pressure earlier in the day on the back of a stronger US dollar, the release of weaker-than-anticipated US new home sales in the afternoon put an end to the appreciation of the greenback, which helped the complex to rebound and closed higher on average. Although silver was about unchanged (-0.1 percent), gold, platinum, and palladium were up 0.7 percent, 0.6 percent, and 0.5 percent, respectively.
This morning, base metals are quiet amid healthy volumes, with zinc down 0.4 percent, and, nickel and tin down 0.3 percent each. While lead is flat, copper and aluminium are posting a gain of 0.1 percent each. The precious metals complex also is mixed, posting an average gain of 0.1 percent, with palladium up 0.6 percent, silver broadly unchanged, gold off 0.1 percent, and platinum down 0.2 percent.
In Shanghai, the July base metals contracts are slightly weaker, with zinc leading the decline (-1.7 percent). Nickel is marginally down (-0.1 percent) but the rest of the complex is up, including tin (+0.6 percent), lead (+0.4 percent), aluminium (+0.2 percent), and copper (+0.1 percent). Meanwhile, spot copper in Changjiang is up 0.1 percent at Rmb 39,150-39,350, while the backwardation with the futures is at $106 per tonne and the LME/Shanghai copper arb ratio is at 1 to 7.30, indicating that the arb window is now closed to most traders. In the precious metals complex, silver continues to outperform gold, with the former down 0.4 percent while the latter up 0.1 percent.
Bonds – Government bonds continued to rally on Friday. European government bonds finished higher on Friday, pushing yields lower, in part due to the weakness in equities and disappointing readings in manufacturing and service data across the eurozone in July. The Germany 10-year yield fell 5.1 basis points (or 6.87 percent) to 0.691 percent, the France 10-year yield closed 6.1 basis points (or 5.93 percent) down at 0.967 percent, while the Spain 10-year yield dropped 4.7 basis points (or 2.41 percent) down to 1.901 percent. US government bonds also ended higher on Friday, with the US 10-year yield down 0.53 basis points (or 0.23 percent) to 2.2624 percent, as the ongoing decline across the commodity markets likely pushed inflation expectations down and thereby prompted investors to increase their exposure to bonds, which tend to perform relatively better a in a low inflation environment.
Stocks – Broad equities finished lower on Friday. The Euro Stoxx 50 closed 0.95 percent down at 3,600 following the release of weaker-than-anticipated eurozone manufacturing and services data in July. Similarly, US equities continued to trend lower for the fourth consecutive day on investor pessimism following mixed earning results from large companies such as Caterpillar and Freeport-McMoRan, undermining further investor sentiment, as well as the sell-off in commodity prices, which could suggest a slower global economic growth momentum. The Dow Jones ended 0.92 percent down at 17,569 while the S&P 500 closed 1.07 percent down at 2,080. In Asia this morning, equities are pushing sharply lower due to a pick-up in risk aversion amid the July FOMC meeting and weaker investor sentiment following disappointing Chinese data last week. The Nikkei 225 is 1.1 percent down, partly reflecting a stronger yen, the Hang Seng is off 2.81 percent, the CSI 300 is down 2.55 percent and the Kospi is broadly flat (-0.16 percent).
Currencies – The US dollar pushed higher against most currencies on Friday as investors likely continued to revised their expectations regarding the timing and speed of US monetary policy normalisation following the release of stronger-than-expected US data earlier last week. Noticeably, the US dollar appreciated strongly against emerging market (EM) currencies, mainly driven by weaker commodity prices. The greenback appreciated against the euro (EURUSD closing at 1.0977), the sterling (the cable closing at 1.5505), the New Zealand dollar (the Kiwi closing at 0.6572), and the yuan (USDCNH closing at 6.2260), but depreciated slightly against the yen (USDJPY123.769).
The economic agenda is relatively light today. Economic data released this morning indicated that Japan’s Services Producer Price Index (SPPI) slowed to 0.4 percent growth in June from last year, below market expectations of 0.6 percent, and below a 0.6 percent growth year-on-year in May. Economic data published later today will include German import prices for June, the German Ifo business climate for July, M3 money supply and private loans in the Euro Area (EA) for June, and US core and non-core durable goods orders for June. Importantly, the Federal Reserve indicated on Friday that staff economic forecasts (strictly confidential) were inadvertently posted on the Fed’s website on June 29. As a result, the Federal Reserve decided to make those projections more easily accessible (see here).
The base metals complex continues to remain vulnerable due to investor concerns on the health of the Chinese economy after manufacturing activity slowed to a 15-month low in July , especially for copper, which hit a new 2015 low last week, reflecting an upward trend in visible 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 will hold.
Although the sell-off in precious metals paused on Friday, we hold the view that the complex could come under renewed selling pressure this week, especially if the US dollar continues to appreciate and energy prices to drop ahead of the July FOMC meeting (July 29) in so far as the release of the monetary policy statement could include further details regarding the FOMC’s plans for policy normalisation.
| Overnight Performance | ||||
| BST | 05:20 | +/- | +/- % | Lots |
| Cu | 5273.5 | 5.5 | 0.1% | 3279 |
| Al | 1646 | 1 | 0.1% | 218 |
| Ni | 11305 | -35 | -0.3% | 718 |
| Zn | 1950.5 | -7.5 | -0.4% | 914 |
| Pb | 1723 | 0.5 | 0.0% | 200 |
| Sn | 15405 | -40 | -0.3% | 16 |
| Steel | 300 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | -0.1% | 5,345 | ||
| Gold | 1097.3 | -1.4 | -0.1% | |
| Silver | 14.63 | 0 | 0.0% | |
| Platinum | 983.4 | -1.6 | -0.2% | |
| Palladium | 625.8 | 3.8 | 0.6% | |
| Average PM | 0.1% | |||
| SHFE Prices 5:20 BST | Change | % Change | |
| Cu | 38490 | 20 | 0.1% |
| AL | 12305 | 25 | 0.2% |
| Zn | 14825 | -255 | -1.7% |
| Pb | 12835 | 55 | 0.4% |
| Ni | 83940 | -100 | -0.1% |
| Sn | 109510 | 680 | 0.6% |
| Average change (base metals) | -0.1% | ||
| Rebar | 2079 | 2.55 | 0.1% |
| Au | 222 | -1 | -0.4% |
| Ag | 32204 | 31 | 0.1% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
| 00:50am | Japan | SPPI y/y | 0.4% | 0.6% | 0.6% |
| 07:00am | EU | German Import Prices m/m | 0.2% | -0.2% | |
| 09:00am | EU | German Ifo Business Climate | 107.6 | 107.4 | |
| 09:00am | EU | M3 Money Supply y/y | 5.1% | 5.0% | |
| 09:00am | EU | Private Loans y/y | 0.7% | 0.5% | |
| 01:30pm | US | Core Durable Goods Orders m/m | 0.4% | 0.0% | |
| 01:30pm | US | Durable Goods Orders m/m | 3.2% | -2.2% | |
The post Metals could become more volatile ahead of the July FOMC meeting appeared first on The Bullion Desk.
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